On May 9, 2017 Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) (“Valeant” or the “Company” or “we”) reported first-quarter 2017 financial results (Filing, Q1, Valeant, 2017, MAY 9, 2017, View Source [SID1234519091]).
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“Our first quarter performance demonstrates that we are delivering on our commitments. We met our internal expectations, and we are continuing to make progress on our key initiatives, focus on the turnaround of our core businesses and improve internal operating efficiencies,” said Joseph C. Papa, chairman and chief executive officer, Valeant. “Our divestiture efforts and cash flow generation have led to a $3.6 billion reduction in total debt to date, since the end of the first quarter of 2016, and our successful debt refinancing provides us with a more comfortable maturity profile.”
First-Quarter 2017 Highlights
Strengthening the Balance Sheet
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Delivered $954 million in cash flow from operations
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International Headquarters
2150 St. Elzéar Blvd. West
Laval, Quebec H7L 4A8
Phone: 514.744.6792
Fax: 514.744.6272
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Completed more than $1.3 billion in asset sales, including the earlier than expected closure of the sale of the CeraVe, AcneFree and AMBI skincare brands
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On track to close the sale of Dendreon Pharmaceuticals for $819.9 million in cash proceeds in mid-year
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Reduced debt of $1.3 billion in the first quarter of 2017; reduced total debt to date by $3.6 billion since the end of the first quarter of 2016
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Successfully executed a debt refinancing that extended our debt maturity profile, increased our fixed vs. floating rate debt and increased covenant flexibility
Continued Focus on Core Business
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Obtained approval for SILIQ (brodalumab) from the U.S. Food and Drug Administration (FDA) and announced it will be the most competitively priced injectable biologic for moderate-to-severe plaque psoriasis when it launches later this year
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Advanced Bausch + Lomb business
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Received FDA 510(k) clearance for Vitesse
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Received FDA 510(k) clearance for Stellaris Elite
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Introduced Bausch + Lomb ULTRA for Astigmatism contact lenses
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Expanded parameters for Bausch + Lomb ULTRA for Presbyopia contact lenses
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Received FDA filing acceptance with Nicox S.A. for Vyzulta1 (latanoprostene bunod) for glaucoma with a PDUFA action date of August 24, 2017
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Received FDA filing acceptance for Luminesse1 (brimonidine tartrate ophthalmic solution, 0.025%) with a PDUFA action date of December 27, 2017
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Entered into an exclusive, worldwide licensing agreement for the EyeGate II Delivery System and EGP-437 combination product candidate for the treatment of post-operative pain and inflammation in ocular surgery patients
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Stabilized average realized pricing within our dermatology business
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Expanded Salix sales force to reach untapped market potential in primary care
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Grew Bausch + Lomb Vision Care business in Australia, China and Japan, with notable 11% volume growth in China
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Announced new skincare product line collaboration with Suzan Obagi, M.D., and Nextcell Medical Company
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1 Provisional name
First-Quarter Revenue Performance
Total revenues were $2.109 billion for the first quarter of 2017 as compared to $2.372 billion in the first quarter of 2016, a decrease of $263 million, or 11%. The decline was primarily driven by lower volumes in our U.S. Diversified Products and Branded Rx segments as a result of the loss of exclusivity for a number of products and challenging market dynamics. Revenues were also negatively affected by foreign currencies, divestitures and discontinuations, and a modest decrease in average realized pricing. These decreases were partially offset by increased volumes in our Bausch + Lomb/International segment, mainly in Europe, the Middle East, South Africa, China and Australia.
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International Headquarters
2150 St. Elzéar Blvd. West
Laval, Quebec H7L 4A8
Phone: 514.744.6792
Fax: 514.744.6272
Revenues by segment were as follows:
Three Months Ended March 31
(in millions)
2017
2016
Reported Change
Currency Impact
Constant Currency Change2
Segment Revenues
Bausch + Lomb/International
$
1,150
$
1,146
$
4
$
(41
)
$
45
Branded Rx
604
665
(61
)
–
(61
)
U.S. Diversified Products
355
561
(206
)
–
(206
)
Total revenues
$
2,109
$
2,372
$
(263
)
$
(41
)
$
(222
)
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2 To assist investors in evaluating the Company’s performance, we have adjusted for foreign currency effects. Constant currency impact is determined by comparing 2017 reported amounts adjusted to exclude currency impact, calculated using 2016 monthly average exchange rates, to the actual 2016 reported amounts.
Bausch + Lomb/International Segment
The Bausch + Lomb/International segment revenues were $1.15 billion for the first quarter of 2017 as compared to $1.146 billion for first quarter of 2016, an increase of $4 million, or less than 1%. Growth was 4% on a constant currency basis. Gains were primarily driven by increases in our international volumes, particularly in Europe, the Middle East, South Africa, Asia and Australia, of $59 million, partially offset by declines in U.S. Bausch + Lomb volumes of $10 million. Average realized pricing across the segment increased $16 million mainly from the international business units. The U.S. Bausch + Lomb units saw average realized pricing increase by less than $1 million. Volume and pricing gains were partially offset by the unfavorable impact of foreign currencies of $41 million and the impact of divestitures and discontinuations of $21 million.
Branded Rx Segment
The Branded Rx segment revenues were $604 million for the first quarter of 2017 as compared to $665 million in the same period in 2016, a decrease of $61 million, or 9%. The decrease was primarily driven by decreased volumes in the dermatology and Salix business units due to the loss of exclusivity of certain product lines, continued generic competition and the impact of an increase in the prevalence of high deductible medical plans. The decrease in overall volume was partially offset by an increase in average realized prices across the segment. Pricing improved in the dermatology business, driven by lower customer subsidies and accommodations and higher wholesaler selling prices. In the Salix business, we benefited from higher wholesale selling prices and from favorable chargebacks during the quarter. These increases were partially offset by higher managed care rebates particularly in the dermatology business. Segment revenues were also impacted by $7 million as a result of the divestiture of Ruconest.
U.S. Diversified Products Segment
The U.S. Diversified Products segment reported first-quarter 2017 revenues of $355 million as compared to $561 million in the first quarter of 2016, reflecting a decline of $206 million, or 37%. The decrease was primarily driven by
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International Headquarters
2150 St. Elzéar Blvd. West
Laval, Quebec H7L 4A8
Phone: 514.744.6792
Fax: 514.744.6272
a $157 million decrease in volume and lower average realized prices of $47 million. The declines in both volume and average realized price were primarily driven by loss of exclusivity for products in the segment.
GAAP Operating Income
Operating income was $211 million for the first quarter of 2017 as compared to $66 million for the first quarter of 2016, an increase of $145 million. The decrease in operating expenses includes higher direct-to-consumer advertising expenses for Jublia and Xifaxan in the first quarter of 2016, which was partially offset by a higher run rate in general and administrative (G&A) expenses and asset impairments.
GAAP Net Income (Loss)
Net income for the three months ended March 31, 2017 was $628 million as compared to a net loss of ($374) million for the same period in 2016, an increase of $1.002 billion. Net income in the first quarter of 2017 includes a one-time income tax benefit of $908 million from a non-cash internal restructuring that occurred during this time. In addition, net income included the loss on extinguishment of debt of $64 million associated with our debt refinancing and repurchases that occurred in the first quarter of 2017 and an increase in interest expense of $47 million, primarily from the increase in interest rates associated with amendments to our credit agreements in 2016.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA (non-GAAP) was $861 million for the first quarter of 2017 as compared to $1.008 billion for the first quarter of 2016, a decrease of $147 million, primarily due to the loss of exclusivity for products in the U.S. Diversified Products segment.
GAAP Earnings Per Share (EPS) – Diluted
GAAP EPS – Diluted for the first quarter of 2017 came in at $1.79 as compared to $(1.08) in the first quarter of 2016.
GAAP Cash Flow from Operations
Cash provided by operating activities was $954 million for the first quarter of 2017, attributable to changes in our working capital and cash we received from our fulfillment arrangement with Walgreens.
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International Headquarters
2150 St. Elzéar Blvd. West
Laval, Quebec H7L 4A8
Phone: 514.744.6792
Fax: 514.744.6272
2017 Guidance
Valeant has raised guidance for 2017, as follows:
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2017 Full-Year Adjusted EBITDA (non-GAAP) in the range of $3.60 – $3.75 billion from $3.55 – $3.70 billion
This guidance reflects the impact of the sale of the CeraVe, AcneFree and AMBI skincare brands. This guidance does not reflect the impact of the sale of the Dendreon business, which is expected to close mid-year.
Other than with respect to GAAP Revenues, the Company only provides guidance on a non-GAAP basis. The Company does not provide a reconciliation of forward-looking Adjusted EBITDA (non-GAAP) to GAAP net income (loss), due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. In periods where significant acquisitions or divestitures are not expected, the Company believes it might have a basis for forecasting the GAAP equivalent for certain costs, such as amortization, that would otherwise be treated as non-GAAP to calculate projected GAAP net income (loss). However, because other deductions (such as restructuring, gain or loss on extinguishment of debt and litigation and other matters) used to calculate projected net income (loss) vary dramatically based on actual events, the Company is not able to forecast on a GAAP basis with reasonable certainty all deductions needed in order to provide a GAAP calculation of projected net income (loss) at this time. The amounts of these deductions may be material and, therefore, could result in projected GAAP net income (loss) being materially less than projected Adjusted EBITDA (non-GAAP). As previously discussed, the Company is no longer providing guidance with respect to Adjusted Net Income or Adjusted EPS.
Reducing and Refinancing Debt
In the first quarter of 2017, we successfully executed a debt refinancing that extended our debt maturity profile, increased our fixed vs. floating rate debt and increased flexibility under our debt covenants. During the quarter, the Company reduced its outstanding debt by $1.3 billion.
These transactions and debt payments have had the effect of lowering our cash requirements for principal debt payments over the remainder of 2017 through 2020 by an aggregate $6.32 billion, providing us with a much improved liquidity profile during this timeframe and greater flexibility to execute our business plans. In April 2017, we announced that we reduced our term loans under our Senior Secured Credit Facilities by approximately an additional $220 million.
Valeant’s corporate credit ratings remained unchanged during the first quarter of 2017. The Company’s availability under the Revolving Credit Facility was approximately $925 million at March 31, 2017.
Other Matters
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The Company’s cash and cash equivalents were $1.210 billion at March 31, 2017.
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Richard DeSchutter, prior chairman and chief executive officer of DuPont Pharmaceuticals Company, joined the Valeant Board of Directors.