Valeant Sales Miss, Q1 Earnings Beat With Allergan Eyed

Investor's Business Daily

Valeant Pharmaceuticals (VRX) reported a mixed first quarter Thursday, a busy day for drugmakers' earnings reports.

The Canadian drugmaker reported earnings of $1.76 a share, up 35% from the year-earlier quarter and beating by 4 cents the consensus of analysts polled by Thomson Reuters. Sales rose 77% to $1.89 billion, short of consensus for $1.97 billion.

Shares fell nearly 2% to 131.17.

Valeant did not issue new guidance, as it had raised its forecast two weeks ago when it announced a hostile bid for rival Allergan (AGN). At that time, Valeant guided full-year sales in the range of $8.3 billion to $8.7 billion, up from $5.8 billion last year, with EPS of $8.55-$8.80 vs. $6.24.

The quarter's growth generally came from acquisitions, especially the buyout of contact-lens giant Bausch + Lomb in August. Organic sales growth was only 1% as Valeant faced generic competition for some of its leading products, including skin cream Retin-A Micro and herpes ointment Zovirax. However, management expects growth to pick up over the year with new product launches.

The Bausch + Lomb Model

Bausch + Lomb outperformed the rest of the business by clocking 11% organic growth without significant product launches. Valeant now expects some $900 million in synergies from the merger. Valeant CEO J. Michael Pearson said on a conference call with analysts that the Bausch merger is a model for how Valeant would integrate Allergan.

Bausch "had a centralized model where in each country they had three general managers running each of the different businesses (vision care, pharmaceuticals and surgery)," Pearson said. "We combined those all into an iHealth group in each of the different countries. . .. B+L had the exact same structure as Allergan has.

But, Pearson says, he didn't touch the Bausch sales force, acting on a lesson learned the hard way after Valeant bought out Medicis in 2012. Valeant tried to overhaul the sales staff, resulting in high turnover last year. Pearson said that the stabilizing of that situation has helped boost Valeant's North American dermatology business this year.

Valeant CFO Howard Schiller says that he's been traveling the country talking to Allergan's shareholders and that they largely support the deal. Valeant, he says, plans to organize a shareholder referendum to "send a clear message to the Allergan board," which might be replaced if it doesn't cooperate.

Thursday brought a slew of other earnings reports from significant drugmakers.

Jazz Sings Blues Late

IBD 50 stock Salix Pharmaceuticals (SLXP) beat on both the top and bottom lines after the close, though it cut its EPS guidance, citing a greater options expense from a higher stock price.

Salix's revenue, fattened by its recent acquisition of Santarus, jumped 90% over the year-earlier quarter to $384.4 million, $12 million above estimates. Earnings rose 67% to $1.05 a share, beating consensus by 14 cents.

Salix guided 2014 sales in line with the Street at $1.6 billion, but EPS of $6.33 missed analysts' $6.59. The stock fell 3% in after-hours trading.

Another IBD 50 mainstay, Jazz Pharmaceuticals (JAZZ), tumbled more than 9% after hours. Profit rose 19% to $1.61 a share, 18 cents below consensus. Sales gained 26% to $246.9 million, nearly $9 million below Street estimates.

The midpoints of Jazz's 2014 earnings and revenue ranges were on the low side of analysts' consensus. The company expects sales of $1.1 billion to $1.6 billion, with EPS of $8 to $8.25.

Earlier, Regeneron Pharmaceuticals (REGN) reported that sales grew 42% to $625.7 million, more than $16 million above consensus. U.S. sales of its lead drug, Eylea, missed expectations, though the company restated its earlier guidance of full-year U.S. sales of Eylea at $1.7 billion to $1.8 billion. Its stock fell 2% to close at $281.20.

Mallinckrodt (MNK), which is in the process of buying specialty drugmaker Questcor Pharmaceuticals (QCOR), reported earnings of 95 cents a share. That was down a nickel from a year earlier (when Mallinckrodt was still part of Covidien (COV), but it beat consensus by 18 cents. Sales fell 5% to $557.8 million, about $8 million short of estimates.

But Mallinckrodt raised its guidance to meet Street estimates on sales and surpass them on earnings. That may have helped its stock close up nearly 1% at 75.10.

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