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Valeant (VRX) Beats on Q2 Earnings & Revenues, Ups View - Analyst Blog

Zacks Equity Research
Updated

Valeant Pharmaceuticals International, Inc VRX reported second-quarter 2015 cash earnings of $2.56 per share (excluding special items), up 34% year over year and beat the Zacks Consensus Estimate of $2.46. The company’s shares gained 6.24% following the announcement.

Revenues increased 34% year over year to $2.7 billion surpassing the Zacks Consensus Estimate of $2.5 billion. The company benefited from its acquisition of Salix Pharmaceuticals, which contributed $313 million to total revenues. Excluding the negative impact of foreign exchange and contribution from Salix Pharmaceuticals, revenues increased 27% from the prior-year period.

Quarterly Highlights

In the reported quarter, same-store organic growth came in at 19%. U.S. businesses were driven by strong performance of Dermatology, Contact Lenses and Dental and contributions from Obagi. Strong performance in emerging markets including China, Middle East, North Africa and Russia supported sales. Dermatology, Contact Lenses and Dental sales soared 55%, 22% and 86% year over year, respectively.

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The top 20 products in Valeant’s portfolio contributed 40% to total revenue in this quarter with the top 10 products accounting for approximately 28% of the revenues. The top 20 products generated organic same-store growth of 32%.

Meanwhile, Valeant is quite active on the acquisition front. On its second-quarter call, Valeant announced that it will acquire Humax, a Colombia-based branded generics company. Additionally, Valeant plans to buy Commonwealth Diagnostics, which commercializes tests for irritable bowel syndrome with diarrhea (IBS-D). In Jul 2015, Valeant announced that it has entered into a definitive agreement to acquire Mercury (Cayman) Holdings, the holding company of Amoun Pharmaceutical. The transaction is expected to close by Sep 2015.

2015 Outlook

Valeant has increased its guidance for earnings in 2015 to $11.50 – $11.80 per share from the prior guidance of $10.90 – $11.20 per share. This reflects the upside of Xifaxan’s approval in the U.S. for IBS-D as well as continued business outperformance. The Zacks Consensus Estimate stands lower at $11.05. The company now expects total revenue in the range of $10.7 billion – $11.1 billion up from the prior guidance of $10.4 billion – $10.6 billion. The Zacks Consensus Estimate stands at $10.5 billion. Salix is expected to contribute $1.2 billion to revenues.

For the third quarter of 2015, Valeant expects total revenue in the range of $2.6 billion – $2.8 billion. The Zacks Consensus Estimate is $2.7 billion, well within the company’s expectations. Valeant expects earnings in the range of $2.60 – $2.70 per share. The Zacks Consensus Estimate currently stands at $2.84 per share.

For the fourth quarter of 2015, the company expects total revenue in the range of $3.2 billion – $3.4 billion while the Zacks Consensus Estimate stands at $3.1 billion.  Earnings are expected in the range of $3.98 – $4.18 per share. The Zacks Consensus Estimate stands at $3.44 per share.

Same-store sales organic growth is projected at over 10% for the second half of 2015.

Meanwhile, Valeant is working on the reduction of wholesale inventory for Salix. The company expects to achieve run-rate synergies of $530 million by 2015-end.

Our Take

Valeant’s second-quarter 2015 results were encouraging with the company beating on both the top and bottom line. The increase in guidance for the second half of 2015 is also impressive.

We are pleased with the performance of both the Dermatology and eye health businesses in the U.S. in this quarter. However, the company expects generic competition for a number of its key products (including Xifaxan and Jublia) from next quarter.

Valeant currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector include Corcept Therapeutics Incorporated CORT, Anacor Pharmaceuticals, Inc. ANAC and Alcobra Ltd. ADHD. All these stocks carry a Zacks Rank #2 (Buy).

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