There wasn't much good news when Valeant Pharmaceuticals (NYSE:BHC) reported its fourth-quarter and full-year 2016 results in February. Revenue was down and losses worsened.
Valeant's CEO, Joe Papa, however, says that 2016 was a stabilizing year. Papa looks at 2017 as the beginning of the company's turnaround. The drugmaker gets a chance to demonstrate if it's starting to turn things around when it announces its first-quarter 2017 results on May 9. Here's what you can expect.
Lower revenue from divestitures and loss of exclusivity
The biggest factor impacting Valeant's first-quarter results will be loss of exclusivity for several products. Neurology will be hit especially hard. Valeant lost exclusivity for Nitropress, Ammonul, Edecrin, and Virazole last year. Approval for a generic rival to Nitropress came earlier than many expected, so Valeant will almost certainly see lower sales for its heart drug.
Valeant also sold several products as part of its debt reduction efforts. The company won't feel the full pain from lower sales due to these divestitures until later in 2017. However, the sale of Ruconest closed in December, so the absence of the hereditary angioedema drug will make a dent in first-quarter results.
Valeant's costs could also increase in the first quarter. The biggest additional item will likely be the milestone payment due to AstraZeneca upon approval of psoriasis drug brodalumab, now branded as Siliq. Siliq won U.S. regulatory approval in February, which means that Valeant had to fork over the hefty sum of $130 million to AstraZeneca.
There could also be higher costs due to product launches. Valeant expects to launch over 50 new products in 2017. At least a dozen of those launches occurred in the first quarter.
One notable launch actually isn't for a new product. Valeant relaunched Addyi in March. The drug first won U.S. regulatory approval in August 2015 to treat hypoactive sexual desire disorder in premenopausal women.
Costs could also rise in anticipation of a product launch before it even happens. That's likely, for example, with Siliq. Valeant is already gearing up for launching the drug in mid-2017.
Impact from sales-force turnover
One unknown variable for Valeant's first-quarter performance could be the impact from sales-force turnover. The company made significant progress last year in improving retention of its sales team. In the first quarter, the retention rate stood at 89.2%. By the end of 2016, the sales force retention rate was 94%.
However, Joe Papa hinted in the February earnings call that there was higher turnover in the sales force during the first quarter of 2017. He didn't express serious concerns, though, because it's to be expected that there would be some level of turnover following the end of an incentive period. Still, if the amount of turnover was significant, it could have an impact on first-quarter sales results.
It's probably best to have relatively low expectations for Valeant in the first quarter. And that's not just because of loss of exclusivity for multiple products, divestitures of others, potential higher costs, and possible ripple effects from sales force turnover.
The reality is that the first quarter is historically weaker for Valeant. One factor behind this weakness is that patients aren't as likely to fill prescriptions until they satisfy their deductibles. The first quarter is also when managed care rebates increase. Valeant CFO Paul Herendeen said in February that the company expects earnings to start out low in 2017 but end on a higher note.
Valeant might see a turnaround this year, as Joe Papa predicts. Investors aren't likely to see that turnaround really kick into gear in the first quarter, however.