On June 7, 2016 Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) ("Valeant" or the "Company") reported first quarter 2016 financial results and updated 2016 guidance (Press release, Valeant, JUN 7, 2016, http://ir.valeant.com/news-releases/2016/06-07-2016-110324216 [SID:1234513132]).
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"The first quarter’s results reflect, in part, the impact of significant disruption this organization has faced over the past nine months," said Joseph Papa, chairman and chief executive officer. "This has been a difficult period for Valeant and its stakeholders, and while there are some challenges to work through in certain business operations in 2016, such as our U.S. dermatology unit, the majority of our businesses are performing according to expectations.
"While we recognize that we did not meet the timeline for filing our first quarter results, with our filing expected this week, we will be current in our financial reporting," continued Papa. "We have made progress toward stabilizing the organization over the past few months, and we expect to file our financial results in a timely manner going forward. Valeant has a portfolio of world class brands, a strong new product pipeline and dedicated leaders who are committed to doing what is right and what is necessary to turn this company around by re-engaging our workforce, rebuilding our relationships with prescribers, patients and payors, and regaining the trust of our debtholders and shareholders."
Total Revenues
Total revenues increased $202 million, or 9%, to $2.37 billion in the first quarter of 2016, primarily due to the effect of acquisitions completed in 2015 and their subsequent growth under Valeant’s ownership. This increase was primarily offset by a negative foreign currency impact of $52 million and a negative impact from divestitures and discontinuations of $22 million. On an organic basis, total revenues declined $289 million in the first quarter of 2016 from the remainder of the existing business.
In the Developed Markets segment, revenues increased $186 million primarily from the acquisitions of Salix Pharmaceuticals, Ltd. (Salix) and certain assets of Dendreon Corporation and their subsequent growth under Valeant’s ownership of $513 million, primarily offset by declining volumes in the neurology portfolio and lower volumes in dermatology of $208 million.
In the Emerging Markets segment, revenues increased $15 million, primarily from the acquisition of Amoun Pharmaceutical Company S.A.E. of $59 million, partially offset by a negative foreign currency exchange impact.
Operating Expenses
Cost of goods sold, excluding amortization, as a percentage of product sales, increased to 27% for the first quarter of 2016 as compared to 24% for the first quarter of 2015 (restated) primarily due to an unfavorable foreign currency exchange impact in the first quarter of 2016, lower high-margin dermatology revenues due to changing market dynamics and the addition of lower margin products acquired in 2015, partially offset by increased margins in the neurology and other portfolio, as well as the addition of the Salix portfolio acquired in 2015.
Selling, general and administrative expenses ("SG&A") increased $239 million, or 42%, to $813 million in the first quarter of 2016. As a percentage of revenue, SG&A was 34% in the first quarter of 2016, as compared to 26% in the first quarter of 2015 (restated). SG&A in the first quarter of 2016 was impacted primarily by higher expenses related to acquisitions completed in 2015, as well as expenses related to share-based compensation costs and contractually required termination benefits for the Company’s former Chief Executive Officer, higher expenses to support the U.S. operations, and increased professional fees.
Investment in research and development increased $47 million, or 85%, to $103 million in the first quarter of 2016, primarily due to the development programs related to the Company’s dermatology product portfolio, including IDP-118, as well as brodalumab, an IL-17 receptor monoclonal antibody for patients with moderate-to-severe plaque psoriasis and psoriatic arthritis, and programs acquired in the Salix acquisition.
Net Income (Loss)
Net loss was $373.7 million, or a loss of $1.08 per diluted share for the first quarter of 2016 as compared to net income of $97.7 million, or $0.28 per diluted share in the first quarter of 2015 (restated). Adjusted net income (non-GAAP) was $442.6 million, or $1.27 per diluted share for the first quarter of 2016 as compared to adjusted net income (non-GAAP) of $704.2 million, or $2.05 per diluted share in the first quarter of 2015 (restated).
Cash Flow
GAAP cash flow from operations was $558 million in the first quarter of 2016 as compared to $491 million in the prior year, an increase of 14%.
2016 Guidance
The Company is updating its full year 2016 guidance. Total revenue is expected to be in the range of $9.9 – $10.1 billion. Adjusted EPS (non-GAAP) is expected to be in the range of $6.60 – $7.00. Adjusted EBITDA (non-GAAP) is expected to be in the range of $4.80 – $4.95 billion.