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Valeant Misses Earnings and Revenue Estimate in 1Q (Revised)

Zacks Equity Research

Valeant Pharmaceuticals’ (VRX) first quarter 2013 earnings of $1.27 (excluding special items but including stock-based compensation expense) were short of the Zacks Consensus Estimate by a penny but were up from the year-ago earnings of 1.08 per share.

Revenues for the quarter were $1.07 billion, up 25% from the year-ago period. The year-over-year improvement in revenues was primarily attributable to higher product sales. However, revenues missed the Zacks Consensus Estimate of $1.08 billion.

Quarterly Highlights

Product sales at Valeant Pharma amounted to $1.04 billion during the first quarter of 2013, up 38% year over year. Strong sales in the US Promoted (previously US Dermatology) and Emerging Markets segments contributed to the increase.

US Promoted product sales increased 91% to $479 million fueled by solid growth in key brands such as Acanya, CeraVe, Arestin, Dysport, Restylane, Perlane and AcneFree. Organic growth (same store sales) was approximately 6%. Product sales from the emerging markets grew 27% year over year.

On a pro forma basis, (excluding the impact of foreign exchange) total revenues grew 25% from the year-ago quarter.

Research & development (R&D) expenses climbed 8.1% to $23.8 million.

Selling, general & administrative (SG&A) expenses for the first quarter of 2013 increased 36.4% to $241.9 million due to the integration of Medicis operations.

We note that in Dec 2012, Valeant Pharma acquired the entire outstanding common stock of erstwhile Medicis Pharmaceutical Corporation for approximately $2.6 billion.

Guidance Updated

Valeant Pharma updated its guidance for 2013. Valeant continues to expect revenues between $4.4 billion and $4.8 billion in 2013, up 30% from 2012, excluding potential acquisitions apart from the Natur Produkt acquisition (which was completed in Feb 2013). Nevertheless, earnings per share on a cash basis are now projected around $5.55 –$ 5.85, up from the earlier projection of $5.45 – $5.75. The guidance includes a loss of 35 to 40 cents from the launch of Mylan’s (MYL) generic version of Valeant Pharma’s Zovirax ointment in Apr 2013.

The Zacks Consensus Estimate for 2013 hints at earnings of $5.65 per share on revenues of $4.55 billion.

Valeant expects to obtain synergies of more than $300 million by the end of 2013 from the Medicis acquisition, up from the previous estimate of $275 million. The company recently completed the acquisition of Obagi Medical which is expected to generate synergies of $50 million by the end of 2013.

Valeant Pharma currently carries a Zacks Rank #3 (Hold). Right now, Onyx Pharmaceuticals, Inc. (ONXX) and WuXi PharmaTech (Cayman) Inc. (WX) look better positioned with a Zacks Rank #1 (Strong Buy).

We are reissuing this article to correct a mistake. The original article, issued Friday, May 3, 2013, should no longer be relied upon.

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