Dive Brief:
- After announcing its latest sell off just yesterday, Valeant Pharmaceuticals International Inc. reported third quarter earnings, lowering guidance for the full-year 2017.
- The beleaguered specialty pharma reported revenues of $2.2 billion, down 10% year-over-year, largely due to an increasingly smaller business because of divestitures.
- Valeant lowered its full-year revenue projections to a range of $8.65 billion to $8.8 billion, from previous estimates of $8.7 billion to $8.9 billion.
Dive Insight:
Eighteen months into the job, Valeant CEO Joe Papa is still promising a turnaround, telling investors on a third quarter earnings call on Tuesday that "transforming Valeant will not happen overnight" and that it will take "incremental steps."
While revenues were down and guidance was again lowered, there is one bright spot — Valeant has been paying down debt. The company has reduced its total debt by $6 billion since the first quarter, beating goals it set previously.
But problems still abound. The specialty pharmaceutical company is still dealing with issues in its supply chain and dermatology business, as well as lawsuits related to previous scandals and former management’s bad behavior.
Even though a turnaround seems far off, it isn’t for lack of trying on the part of Valeant. The company has been pushing hard on its Bausch + Lomb eyecare business, which now makes up 57% of sales. The proceeds from the unit were relatively flat last year but increased 6% organically year-over-year in the third quarter 2017. The Salix business, which makes up about 20% of revenues, is also up 6%, largely on increased uptake of the irritable bowel syndrome drug Xifaxan (rifaximin).
Each of these things are small wins for the company, which had to dramatically change its business model two years ago. Previously, Valeant relied heavily on M&A to fill out its pipeline, choosing to avoid R&D almost completely. While that strategy worked for a number of years, it wasn’t sustainable. The company has since been selling off assets to pay down debt and "right-size" its portfolio. It has also increased R&D expenditure. (Although, R&D spend was down in the third quarter because the company has made so many divestitures.)
CFO Paul Herendeen admitted on the call with analysts that "the process of freeing up those resources [from recent divestitures] has been slower than expected" and Valeant hasn’t been able to invest that money back into the business as quickly as it would like.
"If we had a list of five priorities, the first four would be generate cash to reduce debt," said Herendeen. "That’s top of our minds for sure. That said, we do come across some modest — and I have an emphasis on modest — or small-sized opportunities that we could use capital to acquire rights, to add to our R&D pipeline. We’re likely to pursue them as the opportunity arises. But to do that we have a very tight screen. We have a priority of reducing our indebtedness."
Herendeen added that a year ago, divestitures were necessary to reduce debt. Now, he notes, that divestitures will likely to continue to happen, but will be done more opportunistically.