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Valeant Pharmaceuticals (BHC 0.70%) announced its third-quarter earnings results before the market opened on Tuesday. With Valeant's stock plunging over 20% in early trading, it's obvious that the results weren't good. Here's what you need to know about the beleaguered drugmaker's third-quarter performance.
Valeant results: The raw numbers
| Metric |
Q3 2016 Actuals |
Q3 2015 Actuals |
Change (YOY) |
|---|---|---|---|
|
Revenue |
$2.48 billion |
$2.79 billion |
(11.1%) |
|
Net income (loss) |
($1.22 billion) |
$49.5 million |
N/A |
|
Net income (loss) per diluted share |
($3.49) |
$0.14 |
N/A |
YOY = year over year. Data source: Valeant Pharmaceuticals.
What happened this quarter?
Valeant attributed its decline in revenue primarily to lower sales for current products. The company said that negative effects of currency exchange along with the impact of divestitures and discontinuations also hurt revenue in the third quarter.
Those lower sales for current products occurred in nearly every area of Valeant's business. Branded prescription sales fell 23% year over year to $847 million in large part due to paying higher rebates. Valeant's U.S. diversified products segment saw sales drop 16% from the prior-year period to $471 million. The primary issue for this segment related to generic competition.
The only area of Valeant's business to post sales growth was the Bausch + Lomb/international segment. However, even that growth was relatively weak. The segment's revenue increased 4% year over year to $1.16 billion.
Why did Valeant's bottom line get shellacked well beyond the revenue decline? The main reason was that the company recognized a goodwill impairment charge of $1.05 billion. Valeant wrote off this large amount largely because the value of the Salix Pharmaceuticals business acquired in 2015 has deteriorated.
What management had to say
Chairman and CEO Joseph Papa didn't talk much about the third-quarter results, choosing to instead focus on the changes that Valeant is making. Papa said:
This past quarter, we made further progress toward establishing the new Valeant. We have, where appropriate, begun to centralize some parts of the business, and hired two key senior executives: Paul Herendeen, Chief Financial Officer, and Dr. Louis Yu, Chief Quality Officer. We also have started to present our financial results under three operating and reportable segments, which we believe will help clarify areas of strength and provide additional transparency. While we have revised our expectations for the remainder of 2016, I continue to be encouraged by the commitment of our employees who work each day toward meeting our mission of helping improve people's lives through our healthcare products.
Looking forward
As Papa's comments indicated, Valeant lowered its outlook for the rest of 2016. The company now expects total revenue for the year to be between $9.55 billion and $9.65 billion. That's down from the company's previous guidance range of $9.9 billion to $10.1 billion. Adjusted non-GAAP earnings per share are now expected to be between $5.30 and $5.50, down from the previous range of $6.60 to $7.00.
Probably the most worrisome thing for Valeant is its big debt load. The company reported long-term debt as of Sept. 30 totaling nearly $30.4 billion. That's over $100 million higher than the debt figure at the end of 2015.
Rumors flew recently that Valeant might sell Salix. A sale of this business could help Valeant reduce some of that large debt load. However, selling Salix would also deprive Valeant of a key source for potential growth.
If Valeant can stabilize its revenue and earnings and sell off more key assets to reduce debt, the company could turn things around. For now, it's a game of wait and see for investors.
