Valeant Pharmaceuticals: Company’s in Trouble with Updated Earnings

Valeant Pharmaceuticals International Inc. (NYSE: VRX) firstly became a hot topic to the market last year when Citron, which is a famous investment research company posted a warning on how the company made tricks on its financial reports through one of its subsidiaries. Since then, the stock price went into a strong bearish trend. Investors dumped shares due to lowered guidance both for profits and revenue after the company released their earnings in April.

Stocks fell over $50 last fiscal quarter. This tragedy continued to grow whereas the company reported more disappointing earnings on Tuesday. They slashed its guidance again and said some key franchises were performing below its expectations, the latest signs of weakness as the Canadian drug company tries to dig out months of turmoil and heavy debt.

Shares in the company plunged on the news, falling 15% to $24.61 a share.

The drug company, once as the industry’s highest-flying stocks, has sharply cut into its forecasts for financial performance since it gave them in December amid Wall Street questions about the viability of the business and the company’s ability to pay down more than $30 billion in debt.

Valeant CEO Joseph Papa, after a month at the helm of the company, sought to ease the concerns during a conference call with analysts by expressing confidence the company would be able to repay its loans and outlining a plan for stabilizing the business.

But Mr. Papa also described a series of serious obstacles that must be overcome. He said the company’s top-selling product, irritable-bowel drug Xifaxan, was being prescribed more, but sales aren’t rising as much as the company hopes because of sales-force turnover.

The company’s key franchise in skin drugs also faces challenges. After ending a collaboration with an aggressive mail-order pharmacy, Valeant partnered with Walgreens Boots Alliance Inc. to fill many of the prescriptions.

But Mr. Papa said Valeant is selling some of the drugs at a loss. Skin-drug sales in the first quarter were $228.6 million, 43% lower than in the period a year earlier.

Mr. Papa said the company reduced its guidance for the year largely because of the issues with Xifaxan and the skin drugs as well as the discounts it has promised for two cardiac-care drugs whose prices Valeant had previously hiked. “We have to be realistic,” Mr. Papa said.

Mr. Papa said the company had installed new leadership and hired extra sales representatives for the Xifaxan business, is in discussions with Walgreens to resolve the partnership’s issues and is generally taking steps to restore morale and revive the company’s core franchises.

Also Valeant cut its projection for adjusted earnings before interest, taxes, depreciation and amortization—one key measure of its ability to pay down debt—to between $4.8 billion and $4.95 billion this year.

In December, the company had projected $2.1 billion to $2.15 billion more in EBTIDA. Analysts say the level that Valeant is currently forecasting gives it little cushion to meet the requirements for paying down debt under the terms of its loans.

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