Valeant Pharmaceuticals (BHC 1.05%) CEO Joe Papa has referred to the company in the past as "the turnaround opportunity of a lifetime." A key part of his turnaround strategy has been reducing the drugmaker's debt, an area where Valeant has made significant progress. However, lowering debt doesn't translate to growth. And so far in 2017, growth has been elusive for Valeant.
The company announced its third-quarter results before the market opened on Tuesday. This time around, Valeant was actually able to report some growth -- although it came with an asterisk. Here are the highlights.
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Valeant Pharmaceuticals results: The raw numbers
| Metric |
Q3 2017 |
Q3 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Sales |
$2.2 billion | $2.5 billion |
(10.5%) |
|
Net income from continuing operations |
$1.3 billion | ($1.2 billion) |
N/A |
|
Diluted earnings per share (EPS) |
$3.69 | ($3.49) |
N/A |
Data source: Valeant Pharmaceuticals.
What happened with Valeant Pharmaceuticals this quarter?
The great news for Valeant was that it posted a hefty profit in the third quarter instead of a loss, like it did in the second quarter and in the prior-year period. There was a catch, though. Valeant received a huge one-time tax benefit of $1.7 billion. Excluding this tax benefit, and with other adjustments, the company's adjusted net income was $367 million, which is 28% lower than the adjusted net income from the third quarter of 2016.
Valeant's top line deteriorated more year over year in the third quarter than it did in the second quarter of 2017. Loss of exclusivity for a number of products continued to serve as a drag on revenue. In addition, Valeant's divestiture of Dendreon caused sales to be lower than the year-ago period.
However, Valeant's Bausch and Lomb/international segment grew revenue by 1%. That seems weak, but the progress for the segment was better than it might seem at first glance. On a constant currency basis, the business grew by 2% year over year. And excluding the impact of divestitures and discontinuations, sales for the segment increased by 6% over the prior-year period.
The company also benefited from growth in its Salix business, which includes gastrointestinal disease drugs Xifaxan and Apriso. Sales for this business increased 3% year over year with organic growth of 6%.
Valeant continued to make progress in reducing its debt during the third quarter. The company reported that, as of Nov. 7, 2017, it had reduced total debt by roughly $6 billion since the end of the first quarter of 2016. At the end of the third quarter, Valeant's debt totaled $27.4 billion. The drugmaker also had cash, cash equivalents and restricted cash of just under $2 billion.
What management had to say
Valeant CEO Joe Papa said:
Our strong third-quarter performance demonstrates our continued progress in the turnaround of Valeant. Driven by solid execution in our Bausch [and] Lomb/international segment and our Salix business, we delivered strong organic revenue growth across approximately 77% of our business in the quarter. Valeant is a very different company today than it was a year ago. Under a new management team, we have strengthened our balance sheet and stabilized the Company by simplifying our business and allocating resources more efficiently. We realize there is more progress to be made, and we will continue to hold ourselves accountable for delivering on our commitments to best serve our shareholders, employees, customers, and most importantly, patients.
Looking forward
For full-year 2017, Valeant now expects revenue between $8.65 billion and $8.8 billion. That's down from the company's previous guidance of $8.7 billion to $8.9 billion. Valeant thinks some of the other divestitures made this year will pull revenue down. The good news, though, is that the company still anticipates adjusted EBITDA between $3.6 billion and $3.75 billion, even with the divestitures.
Valeant still hasn't clearly demonstrated the turnaround that Joe Papa has spoken about in the past. However, the company's asset sales have allowed it to bring debt levels down as promised by Papa. And some of Valeant's units are delivering organic growth. There's still a long way to go. But Valeant's third-quarter performance, despite some tough year-over-year comparisons, didn't raise further doubts about Papa's turnaround strategy. That by itself is good news for the beleaguered drugmaker.
