On November 7, 2017 Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) ("Valeant" or the "Company" or "we") reported its third-quarter 2017 financial results (Press release, Valeant, NOV 7, 2017, View Source [SID1234521635]).
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"Our strong third-quarter performance demonstrates our continued progress in the turnaround of Valeant. Driven by solid execution in our Bausch + Lomb/International segment and our Salix business, we delivered strong organic revenue growth1 across approximately 77% of our business in the quarter," said Joseph C. Papa, chairman and chief executive officer, Valeant.
"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," Mr. Papa continued. "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."
Company Highlights
Executing on Core Businesses
Increased revenue in the Bausch + Lomb/International segment by 1% compared to the third quarter of 2016; excluding foreign exchange and divestitures, revenue grew organically1 in the segment by 6% compared to the third quarter of 2016
Global Consumer revenue decreased by 2% compared to the third quarter of 2016; Consumer revenue grew organically1 by 6% compared to the third quarter of 2016, driven by strong growth of PreserVision vitamins
Grew revenue in the Global Vision Care business by 5% compared to the third quarter of 2016 and generated organic growth1 of 8% compared to the third quarter of 2016
Advanced Bausch + Lomb business
Received approval from the U.S. Food and Drug Administration (FDA) for VYZULTA, a new treatment option for glaucoma
Introduced Biotrue ONEday for Astigmatism daily disposable contact lenses in 20 European countries
Received Voluntary Action Indicated inspection classification from the FDA for the Bausch + Lomb manufacturing facility in Tampa, Fla., eliminating manufacturing uncertainties related to regulatory submissions for products manufactured there
Grew revenue in the Salix business by 3% compared to the third quarter of 2016 and grew revenue organically1 by 6% compared to the third quarter of 2016
XIFAXAN revenue increased by 5% compared to the third quarter of 2016
APRISO prescriptions grew by 7% compared to the third quarter of 2016
Continued to focus on stabilizing the Ortho Dermatologics business
Launched SILIQ injection in July 2017 as the lowest-priced injectable biologic for moderate-to-severe plaque psoriasis in the United States based on total annual cost; early market access has been better than expected with 75% of dispensed prescriptions covered
Presented multiple data sets on the dermatology pipeline and SILIQ, including 2-year findings demonstrating the long-term efficacy profile of SILIQ, at the 2017 Fall Clinical Dermatology Conference
Received FDA filing acceptance for IDP-118 topical lotion for the treatment of plaque psoriasis
Received FDA 510(k) clearance for the Thermage FLX System to non-invasively smooth skin on the face, eyes and body
Strengthening the Balance Sheet
As of Nov. 7, 2017, reduced total debt by approximately $6 billion since the end of the first quarter of 2016
Exceeded $5 billion commitment to pay down debt from divestiture proceeds and free cash flow earlier than the previously stated timing of February 2018
Completed sale of iNova Pharmaceuticals business and used net proceeds to pay down $923 million of senior secured term loans on Oct. 5, 2017
Utilized cash from operations to repay $100 million of amounts outstanding under the Company’s revolving credit facility during the quarter, and, on Nov. 2, 2017, paid down $125 million of senior secured term loans
Used net proceeds from sale of Dendreon Pharmaceuticals LLC to pay down $811 million of senior secured term loans in July 2017
Expect to complete sale of Obagi Medical Products business before the end of the year and will use net proceeds to pay down senior secured term loans
Redeemed remaining $500 million aggregate principal amount of our outstanding 6.75% Senior Notes due 2018, using cash on hand, on Aug. 15, 2017
Issued $1 billion aggregate principal amount of 5.500% senior secured notes due 2025 on Oct. 17, 2017
Used net proceeds, along with cash on hand, to repurchase $1 billion aggregate principal amount of outstanding 7.000% Senior Notes due 2020 and 6.375% Senior Notes due 2020 and pay fees and expenses
Eliminated all long-term debt maturities until 2020 and all mandatory amortization requirements
As of Nov. 7, 2017, approximately 80% of the Company’s debt is fixed rate debt
Delivered GAAP net income of $1,301 million and Adjusted EBITDA (non-GAAP) of $951 million
Achieved dismissals or other positive outcomes in resolving and managing litigation and investigations in 21 historical matters since the end of second-quarter 2017
Third-Quarter Revenue Performance
Total revenues were $2,219 million for the third quarter of 2017, as compared to $2,479 million in the third quarter of 2016, a decrease of $260 million, or 10%. The decrease was primarily driven by decreases in volume in the U.S. Diversified Products and Branded Rx segments attributed to the previously reported loss of exclusivity for a basket of products and also reflects the impact of divestitures and discontinuations and the unfavorable impact of foreign exchange. The decline was partially offset by increased sales in our Bausch + Lomb/International segment and Salix business.
Revenues by segment for the third quarter of 2017 were as follows:
(in millions)
2017
2016
Reported
Change
Reported
Change
Change at
Constant
Currency2
Organic1
Change
Segment
Bausch + Lomb/International
$1,254
$1,243
$11
1%
2%
6%
Branded Rx
$633
$766
($133)
(17%)
(17%)
(7%)
U.S. Diversified Products
$332
$470
($138)
(29%)
(29%)
(29%)
Total Revenues
$2,219
$2,479
($260)
(10%)
(10%)
(4%)
Bausch + Lomb/International Segment
Bausch + Lomb/International segment revenues were $1,254 million for the third quarter of 2017, as compared to $1,243 million for third quarter of 2016, an increase of $11 million, or 1%. Excluding the impact of divestitures and discontinuations, primarily the skin care divestiture,3 and foreign exchange, the Bausch + Lomb/International segment organically1 grew by approximately 6% compared to the third quarter of 2016, driven by increased volumes in the Global Consumer, International and Global Vision Care businesses.
Branded Rx Segment
Branded Rx segment revenues were $633 million for the third quarter of 2017, as compared to $766 million for third quarter of 2016, a decrease of $133 million, or 17%. The decrease in sales primarily reflects lower volumes in the Ortho Dermatologics business and the loss of sales due to the divestiture of Dendreon Pharmaceuticals LLC. The decline was partially offset by increased sales in the Salix business, including XIFAXAN and APRISO. Compared to the third quarter of 2016, the Salix business grew revenue by 3% and experienced organic growth1 of 6%.
U.S. Diversified Products Segment
U.S. Diversified Products segment revenues were $332 million for the third quarter of 2017, as compared to $470 million for third quarter of 2016, a decrease of $138 million, or 29%. The decline was primarily driven by decreases in volume and price attributed to the previously reported loss of exclusivity for a basket of products.
Operating Income
Operating income was $38 million for the third quarter of 2017, as compared to an operating loss of $863 million for the third quarter of 2016, an increase of $901 million. The increase in operating income primarily reflects the impact of goodwill impairment charges of $1,049 million recorded in the third quarter of 2016. Additionally, the increase in operating income was partially attributed to a net increase of $325 million in other income, primarily due to the gain on the sale of the iNova Pharmaceuticals business, offset by a goodwill impairment of $312 million related to a reporting unit in the Branded Rx segment, as well as a net decrease of approximately $100 million that includes (i) an impairment of the Company’s Sprout Pharmaceuticals (Sprout) subsidiary upon its classification as held for sale and (ii) a fair value adjustment associated with future royalty payments (contingent consideration) related to Sprout.
Net income for the three months ended Sept. 30, 2017 was $1,301 million, as compared to a net loss of $1,218 million for the same period in 2016, an improvement of $2,519 million. The change in net income is mainly attributed to the increase in the benefit of income taxes for the three months ended Sept. 30, 2017, which is primarily due to the completion of the internal tax reorganization efforts we began in the fourth quarter of 2016. The completion of these efforts generated a tax benefit of $1,397 million in the quarter.
Cash provided by operating activities was $490 million for the third quarter of 2017. Year-to-date GAAP cash flow was $1,712 million. Proactive management of working capital continued to provide positive results on the quarter and year-to-date performance.
GAAP Earnings Per Share (EPS) Diluted – for the third quarter of 2017 came in at $3.69 as compared to ($3.49) in the third quarter of 2016.
Adjusted EBITDA(non-GAAP)
Adjusted EBITDA (non-GAAP) was $951 million for the third quarter of 2017, as compared to $1,163 million for the third quarter of 2016, a decrease of $212 million, primarily due to revenue declines coming from the loss of exclusivity impact on the U.S. Diversified Products segment, volume declines in the Ortho Dermatologics business and the previously announced divestitures, partially offset by lower Selling, General and Administrative and Research and Development expenses.
2017 Guidance
Valeant has updated guidance for 2017, as follows:
Updates Full-Year Revenues in the range of $8.65 – $8.80 billion from $8.70 – $8.90 billion
Maintains Full-Year Adjusted EBITDA (non-GAAP) in the range of $3.60 – $3.75 billion despite asset divestitures
This updated guidance reflects the impact of the sales of the CeraVe, AcneFree and AMBI skin care brands; the sale of Dendreon Pharmaceuticals LLC; the sale of the iNova Pharmaceuticals business; and the sale of the Obagi Medical Products business, which is expected to close before the end of this 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, which 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 amount 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).
Additional Highlights
Valeant’s cash, cash equivalents and restricted cash (including non-current) were $1,969 million at Sept. 30, 2017
The Company’s availability under the Revolving Credit Facility was approximately $980 million at Sept. 30, 2017
Valeant’s corporate credit ratings remained unchanged during the third quarter of 2017
Conference Call Details
Date:
Tuesday, Nov. 7, 2017
Time:
8:00 a.m. EST
Web cast:
http://ir.valeant.com/events-and-presentations
Participant Event Dial-in:
(844) 428-3520 (North America)
(409) 767-8386 (International)
Participant Passcode:
91700211
Replay Dial-in:
(855) 859-2056 (North America)
(404) 537-3406 (International)
Replay Passcode:
91700211 (replay available until Jan. 7, 2018)