Valeant Pharmaceuticals Underwhelms in Q2 but Reaffirms 2016 Guidance

By Markets Fool.com

Image source: Getty Images.

Continue Reading Below

If it could go wrong, it pretty much has for Valeant Pharmaceuticals (NYSE: VRX) over the last year. Accounting issues, a CEO change, political pressure, mounting debt, and an assortment of other woes have helped the drugmaker's stock lose a whopping 90% of its value over the past 12 months.

Valeant announced its financial results before the market opened on Tuesday. Has the company's streak of bad luck ended? Here are the highlights.

Valeant results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Revenue

$2.42 billion

$2.73 billion

(11.4%)

Net loss from continuing operations

($302.3 million)

($53.0 million)

--

Earnings per diluted share

($0.88)

($0.15)

--

Data source: Valeant Pharmaceuticals.

Continue Reading Below

What happened with Valeant this quarter?

Multiple factors were behind Valeant's significant year-over-year revenuedecline. Dermatology sales plunged 55% from the second quarter in 2015. Opthalmalogy prescription sales dropped 25%. Dental segment sales fell 24%. Revenue from the company's biggest segment, neuro and other/generics, decreased 11%.

From a revenue perspective, the bright spots were few and far between. Valeant's gastrointestinal sales climbed 10% from the prior-year period. Contact lens revenue increased 8% year over year. Consumer segment sales were up 6% from the year-ago period. All other segments grew revenue by 5% or less, with some segments experiencing small year-over-year declines.

Valeant's bottom line worsened from the second quarter of last year largely because of the revenue shortfall. The company also increased research and development spending by 53%, primarily due todevelopment ofbrodalumab and programs picked up with the Salix acquisition last year.

The company reported adjusted earnings of $488 million, or $1.40 per share, down from $750 million, or $2.14 per share, in the year-ago period. That was less than what investors were expecting.

On a positive note, Valeant's cash flow from operations improved. The company announced $448 million in cash flow from operations for the second quarter. That's a 9% increase from the same quarter last year. Valeant also reported cash and cash equivalents of $852.4 million as of June 30, up from $597.3 million on hand at the end of 2015.

What management had to say

Joseph Papa, Valeant's chairman and CEO, focused less on his company's second-quarter results and more on the future. Papa said:

We continue to make progress toward stabilizing the organization.We are also announcing a new strategic direction for Valeant today, which, at its heart has a mission to improve patients' lives, and will involve reorganizing our company and reporting segments. I am continuously encouraged by the commitment of our employees who work hard daily, rebuilding our relationships with prescribers, patients and payors, and regaining the trust of our debt holders and shareholders. Although it will take time to implement and execute our turnaround plan, I am confident that we will show progress in the coming quarters.

Looking forward

Despite the bad news on multiple fronts in its second-quarter results, Valeant's shares jumped over 18% in pre-market trading.Why? One reason is that the company reaffirmed its full-year 2016 guidance. This signals that Valeant thinks its situation won't worsen.Another potential factor is Joseph Papa's comment about "a new strategic direction."

Success for Valeant in the months and years ahead continues to hinge on turning around the company's dermatology business, achieving better results from its Salix products, and reducing debt. Second-quarter results didn't show much progress for the first two objectives. However, even though Valeant's debt load now stands at $30.8 billion, up from $30.3 billion at the end of 2015, there is some good news.

First, the company's improvement in cash flow helps service the debt. Second, Valeant is raising cash by selling some assets. The latest example is the drugmaker's plans to sell its North American rights for Ruconest toPharming Group N.V.for up to $125 million. It's possible that Valeant could detail more debt reduction plans related to the "new strategic direction" in its earnings conference call.

Valeant's second-quarter results underscore a key point for investors: The long term is more important than the short term. Valeant underwhelmed with its revenue and earnings, but the guidance confirmation and strategy changes give reason to hope for a better future for the beleaguered company.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Keith Speights has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Valeant Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.