Valeant Pharmaceuticals' total revenues increase 74% to $1.54B in Q3 2013

Oct 31 2013

Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) announces third quarter financial results for 2013.

• Total Revenue $1.54 billion; an increase of 74% over the prior year
  • 4% organic growth (same store sales) for the Developed Markets segment, excluding the impact from Zovirax franchise, Retin-A Micro and BenzaClin generic products
  • 14% organic growth (same store sales) for the Emerging Markets segment
  • 10% organic growth for Bausch + Lomb since close versus prior year
• GAAP EPS loss of $2.92; Cash EPS $1.43, an increase of 24% over the prior year; adjusting for pre-closing Bausch + Lomb financing costs of $0.09, Cash EPS would have been $1.51, an increase of 31% over prior year
• GAAP Operating Cash Flow $202 million; Adjusted Operating Cash Flow $408 million; an increase of 69% over the prior year
• Bausch + Lomb integration on track and Valeant expects to realize more than $850 million in synergies
• 2013 Guidance for Cash EPS updated to $6.11 to $6.16

"Despite an unexpected early launch of a generic Retin-A Micro, significant headwinds this quarter from foreign exchange movements, and the demands of a major integration, we managed to beat expectations and position Valeant for a terrific fourth quarter and a strong 2014," stated J. Michael Pearson, chairman and chief executive officer.  "I thank our team, both at Valeant and our new colleagues from Bausch + Lomb, for their commitment, diligence, and focus on execution.  I am confident that our strategic focus on diversification, durable assets, key geographies, and low risk R&D will continue to benefit our shareholders as we look forward to continuing our track record of outperformance." 

Valeant Third Quarter Financial Results

Valeant's total revenues were $1.54 billion, up 74% compared to the third quarter of 2012. Same store organic product sales growth for Legacy Valeant was 7%, excluding the impact of the genericization of the Zovirax franchise, Retin-A Micro and BenzaClin. These products accounted for approximately $100 million in lost sales as compared to the prior year.

Valeant's Developed Markets revenue was $1.14 billion, up 77% as compared to the third quarter of 2012. This increase was primarily led by the acquisition of Bausch + Lomb, which was completed on August 5, 2013. Same store organic product sales growth was 4%, excluding the impact of the genericization of the Zovirax franchise, Retin-A Micro (unexpectedly launched following Valeant's second quarter financial results conference call) and BenzaClin. The growth in the Developed Markets was driven by continued improvement in many of our Dermatology prescription brands, our aesthetics and oral health portfolios, our orphan drug products and CeraVe.

Valeant's Emerging Markets revenue was $399 million, up 68% as compared to the third quarter of 2012.  This increase was also primarily led by the acquisition of Bausch + Lomb.  Total same store sales growth was 14% for the segment, driven by continued strong growth in all of our emerging markets, particularly Poland, Russia, South East Asia and South Africa. 

Since the transaction closed on August 5, 2013, Bausch + Lomb has delivered a same store sales organic growth rate of 10% as compared to the prior year, driven primarily by the U.S. and Emerging Market operations.

The Company reported a net loss of $973 million for the third quarter of 2013, or a loss of $2.92 per share due to the following one-time items: 1) impairment charges of $645 million for ezogabine/retigabine immediate-release formulation and the discontinuation of the modified-release formulation; 2) agreement to pay Anacor Pharmaceuticals $142.5 million to settle all outstanding existing and future claims related to a breach of contract and other existing disputes; and 3) restructuring, integration and other charges of $305 million primarily related to the acquisition of Bausch + Lomb. 

On a Cash EPS basis, adjusted income was $486 million, or $1.43 per diluted share, an increase of 24% over the prior year.  Excluding the pre-closing financing costs and increased share count associated with the financing of the Bausch + Lomb transaction, Cash EPS would have been $1.51, or an increase of 31% over the prior year.  In addition, the unexpected early launch of a generic competitor to Retin-A Micro following Valeant's second quarter financial results conference call negatively impacted Cash EPS by $0.04 and the strengthening of the dollar against many of our major currencies negatively cost the Company an additional $0.03 in the third quarter.

GAAP cash flow from operations was $202 million in the third quarter of 2013, and adjusted cash flow from operations was $408 million, an increase of 69% over the prior year. This increase in adjusted cash flow from operations was driven by growth across all our businesses, offset by an investment in working capital due to the Bausch + Lomb acquisition.

The Company's cost of goods sold (COGS) was $561 million in the third quarter of 2013.  After backing out the fair value adjustment to inventory, amortization expense and other items related to acquisitions, COGS represented 27% of product sales, an increase of four percentage points as compared to the third quarter of 2012 due to the acquisition of Bausch + Lomb which has a higher COGS profile.

Selling, General and Administrative expenses were $356 million in the third quarter of 2013 which includes a $4 million step-up in stock based compensation expenses.  Excluding these expenses, SG&A was approximately 23% of revenue.  Research and Development expenses were $49 million in the third quarter of 2013, or approximately 3% of revenue.

Bausch + Lomb Transaction

On August 5, 2013, Valeant completed its acquisition of Bausch + Lomb.  We expect to realize more than $850 million of cost synergies from the combined Company, with a run rate north of $500 million by year-end 2013 and a run rate more than $850 million by year-end 2014.  

2013 Guidance

The Company is updating its 2013 Cash EPS guidance to $6.11 to $6.16.  Total revenue for 2013 is expected to be in the range of $5.7 billion to $5.9 billion and adjusted Cash Flow from Operations is expected to be greater than $1.8 billion.

Conference Call and Webcast Information

The Company will host a conference call and a live Internet webcast along with a slide presentation today at 8:00 a.m. ET (5:00 a.m. PT), October 31, 2013 to discuss its third quarter financial results for 2013. The dial-in number to participate on this call is (877) 876-8393 confirmation code 72650802. International callers should dial (973) 200-3961, confirmation code 72650802. A replay will be available approximately two hours following the conclusion of the conference call through November 7, 2013 and can be accessed by dialing (855) 859-2056, or (404) 537-3406, confirmation code 72650802. The live webcast of the conference call may be accessed through the investor relations section of the Company's corporate website at www.valeant.com.