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Valeant sales drop shows turnaround has way to go

February 28, 2017
  • Shares down 4.9 percent in early trading; bonds also drop
  • Outlook for 2017 earnings weaker than analysts anticipated

Valeant Pharmaceuticals International Inc.’s turnaround still has a long way to go.

The drugmaker reported a sharp drop in sales last quarter, and still has $30 billion in debt hanging over its balance sheet that can only be dealt with by selling assets or improving cash flow. On Tuesday, it said that sales and profits this year will decline further.

Even that drab forecast didn’t satisfy one analyst. “It still doesn’t appear that management has a realistic outlook on its organic growth,” Irina Koffler, of Mizuho Securities, said in a note to clients. She cut her price target on the shares to $9.

Joe Papa

Photographer: Chris Goodney/Bloomberg

The shares were down 5.9 percent to $15.71 in early U.S. trading. The bonds also declined.

Since taking over in May, Chief Executive Officer Joe Papa has been selling off divisions to reduce the debt burden. He announced two deals worth $2.1 billion combined in one day in January, an important first step in his endeavor to get cash.

But as Papa works at lowering the debt, he also faces a loss of exclusivity for a number of treatments in early 2017. They include some of the higher-priced products that thrust the drugmaker into the spotlight in 2015, when Valeant became the target of public and political outrage in the U.S. for hiking up prices of old drugs just after buying them. Papa, who took over in May last year to turn around the company, had to cut Valeant’s forecasts twice in 2016 as sales deteriorated.

Bonds Drop

Valeant’s $1 billion of 5.5 percent coupon bonds due in 2023 dropped 0.8 cent to 81 cents at 8:02 a.m in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

Shares of the company, which has headquarters in Laval, Quebec, had rebounded 15 percent this year as of Monday’s close of $16.71. They were still worth a fraction of their August 2015 peak of $262.52 and below their levels when Papa joined.

Fourth-quarter earnings excluding some items were $1.26 a share, while analysts anticipated $1.21, the average of projections compiled by Bloomberg. For 2017, Valeant see earnings before interest, taxes, depreciation and amortization of $3.55 billion to $3.70 billion. Analysts anticipated $3.9 billion, on average. Sales will be $8.90 billion to $9.10 billion, down from $9.67 billion last year, the company said.


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