Valeant Pharma Beats on Revenues - Analyst Blog
12 May 2011 - 9:00PM
Zacks
Valeant Pharmaceuticals International‘s (VRX)
first quarter 2011 earnings of 49 cents per share (excluding
special items but including stock-based compensation expense)
missed the Zacks Consensus Estimate by 2 cents and the year-ago
earnings by 10 cents per share.
Revenues for the quarter increased to $565 million, well above
the Zacks Consensus Estimate of $517 million and the prior-year
quarter’s revenue of $219.6 million. However, revenue included a
one-time alliance and royalty revenue of $36 million related to the
March 2011 out-licensing of product rights to Cloderm cream, a
mid-potency steroid to Dr. Reddy's Laboratories
(RDY). Excluding the one-time payment, revenue was $529 million,
which was still above both the Zacks Consensus Estimate and the
prior-year revenue. Organically (excluding the impact of one-time
revenues, acquisitions and foreign exchange), revenues grew 7% over
the year-ago quarter.
The improvement in revenues was primarily due to the September
2010 merger of Valeant Pharma with Biovail Corporation. Results for
the first quarter of 2010 only reflect legacy Biovail revenues and
do not include any revenues from legacy Valeant.
In spite of increased revenues, earnings saw a year-over-year
decline in the first quarter owing to a higher number of shares
outstanding.
Quarterly Highlights
Product sales amounted to $500.4 million during the reported
quarter, compared with $212.0 million in the prior-year quarter.
The increase in revenues was due to robust growth in all segments
(specialty pharmaceuticals as well as branded generics) except for
the US Neurology and Other, which was affected by the availability
of generics for Diastat.
In the reported quarter, Wellbutrin, a drug for depression,
delivered a growth of 2% over the prior-year period. Zovirax,
available as cream and ointment for herpes, also posted a growth of
38%. Recently, Valeant acquired the US rights for all formulations
of Zovirax fromGlaxoSmithKline (GSK) and hopes to
acquire the Canadian rights soon. Prior to this agreement, Glaxo
used to supply Zovirax to Biovail for marketing and distribution
solely in the US.
Research & development (R&D) expenses amounted to $13.7
million, reflecting a year-over-year increase of 8.7%. Selling,
general & administrative (SG&A) expenses for the first
quarter increased 221.0% to $139.5 million. Increase in the number
of pipeline and marketed products, following the merger, led to the
rise in operating expenses.
Valeant Pharma was successful in achieving cost synergies of $75
million in the reported quarter compared with $53 million achieved
in the prior quarter.
Outlook
Following the release of first quarter results, Valeant Pharma
upped its guidance for 2011. The company expects earnings to come
in the range of $2.65 – $2.90 per share for 2011, revised from the
previous guidance range of $2.45 – $2.70 per share. Revenue is
expected to be greater than $2.4 billion in 2011. The Zacks
Consensus Estimate of revenue is in line with the company
expectations.
Additionally, the company expects to experience organic growth
of at least 8% through 2011.
Valeant Pharma estimates that the combined company will generate
$350 million in cost synergies in 2011, higher than its expectation
in the last quarter and significantly better than the $175 million
in synergies originally expected when the merger was first
announced.
Pipeline Update
In March 2011, Valeant and partner Glaxo announced receipt of
marketing authorization for the use of ezogabine (to be sold as
Trobalt in the European Union) as an add-on treatment of partial
onset seizures, in patients with epilepsy. The company launched the
product in the EU starting with Germany. Valeant Pharma expects to
launch Trobalt in UK, Denmark and Switzerland later in May
2011.
In the US, in mid April 2011, Glaxo and Valeant submitted a
response to the complete response letter (CRL) issued by the US
Food and Drug Administration (FDA) for the new drug application
(NDA) for ezogabine. The CRL was received in December 2010, and was
for non-clinical reasons. The FDA will give its decision on June
15, 2011.
Our Recommendation
We have a Neutral recommendation on Valeant Pharmaceuticals. Our
long-term stance is supported by a Zacks #3 Rank (Hold rating)
carried by the company in the short run.
Valeant Pharmaceuticals had expressed an interest in acquiring
the Cephalon (CEPH) and had initially approached
Cephalon in late March with a $73 bid. However, Cephalon rejected
the offer and subsequently entered into a definitive agreement to
be acquired by Teva Pharmaceutical Industries Ltd.
(TEVA).
Overall, we believe the combined Biovail/Valeant entity is a
unique company as it offers global reach, a diversified revenue
base, a favorable tax structure and limited patent exposure. The
combined entity is expanding its global presence through accretive
acquisitions. However, the failure to acquire Cephalon disappointed
us. We therefore prefer to remain on the sidelines.
CEPHALON INC (CEPH): Free Stock Analysis Report
GLAXOSMITHKLINE (GSK): Free Stock Analysis Report
DOCTOR REDDYS (RDY): Free Stock Analysis Report
TEVA PHARM ADR (TEVA): Free Stock Analysis Report
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