MONTREAL – Despite posting its biggest one-day share gain Tuesday, the new CEO of struggling drugmaker Valeant Pharmaceuticals says the company could eventually undergo a rebranding if its tarnished name stands in the way of a turnaround plan.
“It’s not something that’s a critical priority but it’s something certainly that I will continue to look at if I think it’s getting in the way,” Joe Papa said in an interview after releasing Valeant’s second-quarter results.
Papa said he continues to monitor reaction to Valeant’s name even though “noise” about the moniker has died down in the last three to six months.
The chairman and chief executive said the Laval, Que.-based company is making progress. It has adjusted its long-term agreement with U.S. pharmacy retailer Walgreens, improved its dermatology and gastrointestinal businesses, and paid down debt.
Valeant (TSX:VRX) plans to reorganize its operations into three segments, is reviewing opportunities to sell up to US$8 billion of non-core assets and is seeking changes to terms with lenders.
While the company expects to remain in compliance with debt covenants this year, Papa told analysts the cushion isn’t large enough, which has caused Valeant’s stock price to significantly lag.
The company’s shares, however, got a big bounce Tuesday after it confirmed its previously reduced earnings guidance for the year would remain the same despite some investor concerns about a further reduction, said BMO Capital analyst Gary Nachman.
The shares closed up nearly 25 per cent to C$36.88 on heavy trading Tuesday on the Toronto Stock Exchange, despite reporting a US$302-million net loss for its second quarter — nearly six times bigger than during the same period last year.
But Valeant’s share price is still far below its 52-week high of C$333.44 a year ago, when it was one of Canada’s most valuable publicly traded companies.
Papa said free cash flow and asset sales will reduce its US$30-billion debt by more than US$5 billion over the next 18 months. It expects to pay at least US$1.7 billion this year, including US$880 million paid in the quarter.
It announced plans Tuesday to sell three assets — brodalumab EU rights, the Synergetics USA business and Ruconest — for US$181 million plus the potential for an additional US$329 million in future payments.
Papa said he’d love to trim about US$10 billion off Valeant’s debt.
“In a perfect world I’d like to get to investment grade, but that’s not going to happen in the near term,” the veteran pharma executive said.
For now, the company plans to spend more on drug development by reducing administrative costs.
“Valeant and stakeholders have gone through a lot in the past year and I’m confident that through our focused strategy, smart investment and a solid execution the future is bright,” he said during the conference call.
One bright point for the drugmaker was an increase in cash flow from operations. It was up nine per cent to US$448 million.
However, Valeant — which reports in U.S. currency — had lower adjusted earnings, which fell to $488 million or $1.40 per share from $751 million or $2.14 per share in the second quarter of 2015.
Valeant’s net loss equalled 88 cents per share, compared with the year-earlier loss of 15 cents per share.
Revenue fell by 11 per cent to $2.42 billion from $2.73 billion, mainly because of reduced sales from its existing businesses and a negative impact from a shift in foreign exchange rates.
Analysts had estimated revenue would drop 10 per cent to $2.46 billion and adjusted profits would plummet to $512.44 million or $1.48 per share
Despite slightly missing forecasts, the company is showing signs of a turnaround, said Neil Maruoka of Canaccord Genuity.
“Nonetheless, we believe that new CEO Joseph Papa must continue to build credibility during the early stages of his tenure, and investor confidence can only be fostered through execution and delivery of targets,” he wrote in a report.
While Maruoka said changes to Valeant’s long-term agreement with U.S. pharmacy retailer Walgreens is positive, he continues to have concerns about its ability to maintain prescription sales.
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