Valeant (VRX) Beats Earnings Estimates in Q3, Shares Gain
Shares of Valeant Pharmaceuticals (VRX) gained 3.0% immediately after the company reported its third-quarter 2014 results. Shares have increased further 4.5% in the following trading session.
Overall, shares have increased 7.5% since the announcement.
Valeant reported third-quarter 2014 cash earnings per share of $2.11 (excluding special items and non-cash expenses), up from the year-ago figure of $1.43 per share.
Excluding stock-based compensation expense, earnings per share came in at $2.10. The Zacks Consensus Estimate for the third quarter was 61 cents.
Revenues for the quarter soared 33.4% year over year to $2.0 billion on the back of the acquisition of Bausch + Lomb in 2013. Revenues were in line with the Zacks Consensus Estimate.
Quarterly Highlights
Product sales at Valeant amounted to $2.0 billion during the third quarter, up 34.3% year over year. Growth in sales was driven by strong sales in the U.S. and emerging markets of Europe.
Total sales from developed markets jumped nearly 32% year over year to $1.5 billion buoyed by the acquisition of Bausch + Lomb.
The dermatology business rebounded driven by the launch of Jublia and Luzu among others. The neurology business also exceeded management’s expectations due to growth in Xenazine, Wellbutrin XL and other orphan products.
Overall, same-store organic product sales increased 19% year over year. Excluding the impact of generics for Retin-A Micro and Vanos franchises in the U.S., and Wellbutrin XL in Canada, same-store organic product sales increased 22% from the year-ago period.
Sales from emerging markets also grew 37.4% year over year driven by the acquisition of Bausch + Lomb.
We note that Valeant had acquired Bausch + Lomb in Aug 2013 in order to strengthen its ophthalmology business, which was a miniscule portion of Valeant’s overall portfolio.
Research & development expenses increased 20.6% to $59.1 million year over year while selling, general & development expenses increased 41.7% to $504.1 million over the same time frame.
Allergan Acquisition
Valeant has been relentlessly pursuing Allergan (AGN) since Apr 2014. On Jun 18, 2014, Valeant announced that it has commenced an exchange offer for the common stock of Allergan after the latter rejected its previous offer a couple of times.
As per the terms of the offer, shareholders of Allergan could exchange each of their shares for $72.00 in cash and 0.83 shares of Valeant common stock. Last month, Valeant sent a letter to reinstate its intent to negotiate a mutually agreeable transaction with Allergan.
However, Allergan continues to believe that Valeant’s offer substantially undervalues the company, creates significant risks and uncertainties for the stockholders of Allergan, and thus, is not in the best interests of the company and its shareholders.
Allergan, a global multi-specialty pharmaceutical company, develops and commercializes innovative products for eye care, neurological, medical aesthetics, medical dermatology, breast aesthetics, urological and other specialty markets.
Guidance Update
Based on strong third-quarter results, Valeant upped its earnings guidance for the fourth quarter of 2014 by 10 cents to the band of $2.45–$2.55. Revenues are now expected at around $2.1–$2.3 billion.
Valeant has increased its 2014 guidance as well. Revenues are now projected in the range of $8.1–$8.3 billion, up from the earlier projection of $8.0–$8.1 billion but short of the Zacks Consensus Estimate of $8.9 billion. Earnings per share, on a cash basis, are now projected in the range of $8.22–$8.32, compared to the earlier projection in the range of $7.90–$8.10 per share.
Our Take
Valeant’s third-quarter results and the subsequent increase in guidance were encouraging.
This Canada-based specialty pharmaceutical company has been quite aggressive on the acquisition front in the last two years, which contributed to its solid growth. Dermatology is the focal point for Valeant.
We expect investor focus to remain on further updates from Valeant and Allergan on the acquisition proposal.
Right now, stocks like Pacira Pharmaceuticals (PCRX) and Lannett Inc. (LCI) look well placed in the healthcare sector.
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