One major question Valeant Pharmaceuticals (BHC 1.05%) had to answer when the company reported its second-quarter results was this: How significant was the impact of loss of exclusivity for several of its drugs? The drugmaker raised its full-year 2017 guidance three months ago, banking on that impact being less than initially feared.
Valeant answered this question when the company reported on its second-quarter performance before the market opened on Tuesday. The bigger story, though, related to its debt-reduction efforts. Here are the highlights from Valeant's update.
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Valeant results: The raw numbers
| Metric |
Q2 2017 |
Q2 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Sales |
$2.23 billion | $2.42 billion |
(8%) |
|
Net income (loss) from continuing operations |
($38 million) | ($30 million) |
N/A |
|
Diluted EPS |
($0.11) | ($0.88) |
N/A |
Data Source: Valeant.
What happened with Valeant this quarter?
Valeant's revenue decline in the second quarter stemmed from exactly what was expected to make a dent in sales -- loss of exclusivity for several products. The decrease also came in part as a result of divestitures and discontinuations, especially the sale of its skin-care business that had been part of the Bausch & Lomb/international segment.
Excluding the impact of that skin-care divestiture, Valeant's Bausch & Lomb/international segment saw revenue increase 6% year over year in the second quarter to $1.24 billion. Without adjusting for the divestiture, revenue for the segment fell 3% from the prior-year period. A strong performance from the company's operations in China, Europe, and Africa/Middle East, along with its global ophthalmology business, played a big factor in the segment's sales growth.
Branded Rx segment revenue fell 3% year over year to $636 million. This decline was also largely due to the negative impact of divestitures and discontinuations, although continued weakness in Valeant's dermatology business also contributed to the drop. The good news, however, was that revenue from the Salix business, which includes gastrointestinal drug Xifaxan, grew 13% year over year in the second quarter despite the divestiture of hereditary angioedema drug Ruconest.
As expected, Valeant's diversified products segment saw the biggest sales decline in the second quarter. Revenue for the segment plunged 27% below the prior-year period to $356 million. Loss of exclusivity for several products caused this big drop in revenue.
The biggest achievements for Valeant in the second quarter related to its moves to reduce its debt. The company completed the sale of Dendreon and announced agreements to sell iNova Pharmaceuticals and Obagi Medical Products. By Aug. 15, 2017, Valeant will have reduced its debt by more than $4.8 billion since the first quarter of 2016. The company doesn't have any debt maturities or mandatory amortization requirements until 2020. Valeant also now thinks that it will pay down $5 billion in debt from divestiture proceeds and free cash flow earlier than previously expected.
What management had to say
Valeant chairman and CEO Joseph Papa said:
The investments we are making in our core business are delivering results. The Bausch & Lomb/International segment and Salix business, which together represented 73% of our revenue in the quarter, delivered strong organic growth, and we are continuing to reduce debt and resolve legacy issues.
Looking forward
Valeant updated its full-year 2017 revenue guidance. The company now expects that 2017 revenue will be between $8.7 billion and $8.9 billion. That's down from the previous outlook of $8.9 billion to $9.1 billion. The company maintained its guidance for full-year adjusted EBITDA of $3.6 billion to $3.75 billion.
The sales of iNova and Obagi should close in the next few months. Look for Valeant to potentially announce other deals in the not-too-distant future as well. The company appears to be executing well on its goal of reducing debt through divestitures.
Perhaps the more important area to watch for investors, though, is growth in Valeant's remaining products. The second-quarter results for Xifaxan are encouraging, with sales climbing 16% year over year. Bausch & Lomb/international is also performing relatively well, despite the skin-care divestiture.
However, the loss of exclusivity of a basket of products continues to weigh on Valeant's financial numbers. The company needs a shot in the arm from new products. Investors will want to especially watch how well the launch of psoriasis drug Siliq goes in the next few quarters.
There's a limit to how much the company can sell off. At some point, Valeant will need improvement from its existing and new products to achieve the turnaround that CEO Joe Papa plans to deliver.
