Valeant Pharmaceuticals International, Inc. VRX announced that it has lowered its guidance for the fourth quarter of 2015 and the full year.
The company expects revenues around $2.7–$2.8 billion in the fourth quarter of 2015, compared to the earlier estimate of $3.25–$3.45 billion. The current forecast is much lower than the Zacks Consensus Estimate of $3.1 billion. Earnings per share are now projected in the range of $2.55–$2.65, down from the previous forecast of $4.00–$4.20 and considerably short of the Zacks Consensus Estimate of $3.57.
We note that Valeant’s relationship with Philidor Rx Services, a specialty pharmaceutical company providing back-end services like call center, claims adjudication, IT and logistics support, and compliance/HIPPA regulation guidance to other pharmacies, came under the scanner in Oct 2015 after it was alleged that the latter was urging pharmacy benefit managers to opt for expensive drugs over their cheaper generics. Consequently, Valeant terminated its relationship with Philidor, whereby it lost 20% of prescriptions and $250 million in sales in the fourth quarter.
To replace the lost business, Valeant entered into a distribution agreement with Walgreens Boots Alliance WBA and decided to lower prices by 10% of all its dermatological and ophthalmological products that are distributed through Walgreens retail outlets.
Valeant and Walgreens entered into a separate agreement, whereby Valeant will distribute more than 30 branded products such as Aldara, Tiazac and Glumetza in dermatology, ophthalmology, gastrointestinal and neurology/other therapeutic areas through Walgreens outlets at generic prices. The reduced pricing will be effective from the second half of 2016, and will range from 5% to 95% or a weighted-average price decrease of more than 50%.
Valeant also slashed its guidance for the full year. The company now expects revenues around $10.4–$10.5 billion, compared to the previous projection of $11.0–11.2 billion. The figure fell short of the Zacks Consensus Estimate of $10.8 billion. Earnings per share are now projected in the range of $10.23–$10.33, down from the previous forecast of $11.67–$11.87 and much below the Zacks Consensus Estimate of $11.18.
The company also provided guidance for 2016. It expects revenues around $12.5–$12.7 billion in 2016. Growth in 2016 is expected to be driven by double-digit growth in same-store sales. Earnings per share are projected between $13.25 and $13.75. Valeant expects to reduce debt by $2.25 billion in 2016.
Our Take
Shares soared 8.1% on the news. This was the second consecutive day that Valeant shares gained, following its agreement with Walgreens. Notably, the stock has tanked almost 54% since Aug 2015 for all the wrong reasons like a price hike of specialty drugs, erroneous financial reporting and termination of contracts with Philidor Rx Services.
Valeant is set to turn its business around after facing a tumultuous year. The company came under the spotlight in Oct 2015 because of a massive price hike of two of its drugs — Isuprel and Nitropres. These drugs, acquired by the company earlier this year from Marathon Pharmaceuticals, were used by hospitals and other providers to treat serious heart conditions. Since the acquisition, the company has hiked their prices by 212% and 525%, respectively. As a result, Valeant was accused of having followed the same business model as Martin Shkreli, whose company had spiked the price of Daraprim from $13.50 to $750.
The company aims to restore growth in its dermatology business too, which was adversely impacted in 2015. The company is also looking to increase its sales force for marketing gastrointestinal drug, Xifaxan, with a target of $1 billion in sales. Moreover, Valeant is set to gain approval for three of its drugs in 2016, namely brodalumab, latanoprostene bunod, Relistor oral.
Valeant currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector include Corcept Therapeutics CORT and Mylan, Inc. MYL. Both sport a Zacks Rank #1 (Strong Buy).
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