Valeant Pharmaceuticals International reports 30% increase in total revenue for first-quarter 2010

May 3 2010

Valeant Pharmaceuticals International (NYSE: VRX) today announced first quarter financial results for 2010.

“We are pleased to report that the positive trend of 2009 has continued into the first quarter of 2010, which has historically been our softest quarter of the year,” stated J. Michael Pearson, chairman and chief executive officer.  “Our strong performance this quarter, coupled with the additional transactions we have announced so far in 2010, puts us in a position to increase our adjusted non-GAAP (Cash) EPS guidance for the year to $2.65 - $2.90, and expected total product sales growth to greater than 30%.”

Revenues:

Total revenue was $232.0 million in the first quarter of 2010 as compared to $177.9 million in the first quarter of 2009, an increase of 30%.  

Product sales in the Specialty Pharmaceuticals segment were $120.7 million in the first quarter of 2010, as compared to $86.3 million in the first quarter of 2009, an increase of 40%.  At constant exchange rates, Specialty Pharmaceuticals product sales increased 32%.  Within the Specialty Pharmaceuticals segment, alliance and service revenue was $22.5 million in the first quarter of 2010 as compared to $11.9 million in the year-ago quarter.  

Product sales in Branded Generics - Latin America were $42.1 million in the first quarter of 2010 as compared to $31.2 million in the same period in 2009, an increase of 35%.  At constant exchange rates, product sales in Latin America increased 17%.  

Product sales in Branded Generics - Europe were $41.7 million in the first quarter of 2010 as compared to $35.3 million in the same period in 2009, an increase of 18%. At constant exchange rates, product sales in Europe decreased 2%.  This decrease was primarily attributable to underlying market conditions in the first quarter of 2010 and we expect to see growth in subsequent quarters in 2010 over comparable quarters in 2009.

Ribavirin royalties were $5.0 million in the first quarter of 2010 as compared to $13.2 million in the first quarter of 2009, a decrease of 62%.  This expected decrease is primarily attributable to the expiration of royalty terms in most European countries.  

Income and Cash Flow:

Income from continuing operations was $35.6 million for the first quarter of 2010, or $0.43 per diluted share, as compared to $30.8 million, or $0.37 per diluted share, for the first quarter of 2009.  On an adjusted non-GAAP (Cash) EPS basis, adjusted income from continuing operations was $52.8 million, or $0.64 per diluted share, in the first quarter of 2010 as compared to adjusted income from continuing operations of $38.1 million, or $0.46 per diluted share, in the first quarter of 2009.  

GAAP cash flow from operations, which includes acquisition transaction fees, for the first quarter of 2010 was $68 million as compared to $38 million for the first quarter of 2009. Adjusted non-GAAP cash flow from operations for the first quarter of 2010 was $69 million as compared to $51 million for the first quarter of 2009.  

2010 Guidance:

The company is updating its previous adjusted non-GAAP (Cash) EPS target and is now targeting adjusted non-GAAP (cash) EPS between $2.65 - $2.90 in 2010, up from prior guidance of $2.45 to $2.70.  

Aton Pharma, Inc. Acquisition:

Valeant is also announcing that it has signed an agreement to acquire Aton Pharma, Inc., a specialty pharmaceutical company focused on ophthalmology and certain orphan drug indications, located in Lawrenceville, New Jersey. The transaction significantly enhances Valeant’s neurology and other products franchise in the United States through the acquisition of a specialty pharmaceutical company with both an in-line business and a development pipeline consisting primarily of orphan drug compounds. Valeant will pay certain milestones based predominately on the achievement of development and commercial targets for certain pipeline products still in development.  Future development of a portion of the pipeline portfolio will be co-funded by the Sellers under a profit sharing agreement with Valeant.  In addition, Valeant will retain global rights to the majority of the Aton products.

Under the terms of the agreement, Valeant will pay approximately $318 million.  Aton is expected to have $80 - $100 million in annual revenue in 2010.  The transaction is subject to certain closing adjustments and is expected to be accretive in 2010.  Aton is owned by affiliates of Cerberus Capital Management, L.P.

“The acquisition of Aton fits into our long-term strategy to pursue diversified opportunities within the pharmaceutical market and offers us another platform for future growth,” stated J. Michael Pearson, chairman and chief executive officer.  “With a business that has historically grown over 30% on an annual basis, and operating margins around 35%, along with a solid pipeline of niche products under development, we now have significantly strengthened our Neuro and Other business which we expect to drive significant value for shareholders.”

Share Repurchase Transaction:

Valeant has repurchased 2.6 million shares of the Company’s common stock held by ValueAct Capital for $107 million, negotiated at a discount calculated in a similar manner to the Company’s privately negotiated, share repurchase completed in November 2009.  To date, the Company has repurchased approximately $520 million, in total, of its convertible debt and its common stock out of the $1.0 billion currently authorized under the securities repurchase program.

“We are very committed to the company and intend to keep Valeant as a top position in our portfolio,” said G. Mason Morfit, partner, ValueAct Capital and Valeant board member.  “We pursued this transaction for portfolio management reasons given Valeant’s significant outperformance and we remain confident in the company’s strategy for future growth.”