MONTREAL – Valeant Pharmaceuticals saw its stock tank Tuesday to its lowest level in nearly six years after the Quebec-based drug giant slashed its outlook for the year and reported disappointing first-quarter results.
CEO Joseph Papa tried to reassure investors that Valeant was on the mend following a year of “major distractions,” including investigations in the U.S. over its drug pricing practices, a shuffle on its board of directors, misstated earnings and concerns about its debt.
“I think we’ve got a very bright future (but) clearly we have some challenges,” Papa said in his first conference call since taking the reins of the company about a month ago.
“Unfortunately, negative external attention continues to adversely impact the business and our reputation with patients, physicians and all of you, our shareholders, as well as our distracted organization.”
Papa, who also replaced Michael Pearson as chairman, said Valeant has developed a stabilization plan it will pursue over the next three to six months before turning its attention to reviving its fortunes over several years.
“Past years have been tough on everyone but we will work through this period, do the right things and be a stronger company in the future,” he said.
On the Toronto Stock Exchange, shares of Valeant (TSX:VRX) plummeted to $28.82 in morning trading, their lowest point since December 2010. They later regained some ground to close at $31.47, a drop of 15 per cent from the previous day.
Valeant’s tumble is a remarkable fall for a company that last year became the most valuable in Canada by market capitalization, when its stock closed at $346.32 on Aug. 5.
On Tuesday, Valeant reset expectations by lowering key financial estimates for the full 2016 financial year. It now expects revenue of between US$9.9 billion and US$10.1 billion and adjusted earnings of between $6.60 and $7 per share.
Its previous estimate was for between US$11 billion and US$11.2 billion of revenue and between $8.50 and $9.50 per share of adjusted earnings.
The company also released its first-quarter financial report, which was delayed as an internal committee investigated misstated sales figures last year from a U.S. mail-order pharmacy that is now defunct. The release of the earnings also stopped the clock on a couple of potential debt defaults.
Adjusted earnings reported in U.S. dollars were $442.6 million or $1.27 per share, down from $704.2 million or $2.05 per share in the first quarter of 2015.
The adjusted earnings were also below the low end of a range from between $1.30 and $1.55 per share, which Valeant reiterated as recently as a month ago. Analysts had estimated $1.37 per share, according to Thomson Reuters.
Valeant’s dermatology program has underperformed and its 20-year deal to sell products through U.S. pharmacy retailer Walgreens isn’t working as planned, Papa said.
“But I think all those things are fixable,” he said.
Neil Maruoka of Canaccord Genuity said the diminished forecast for this year provides “only marginal breathing room” on its debt covenants.
Valeant’s delay in issuing the financial report for the first three months of 2016 had prompted bondholders to warn it was in danger of defaulting on their agreements if the filing wasn’t made by late July or early August. Papa said he doesn’t expect future results will be delayed.
Revenue was up nine per cent to $2.37 billion — within the company’s guidance — largely from acquisitions. Before adjustments, Valeant had a $373.7 million loss equal to $1.08 per share in its first quarter.
That compared with a year-earlier profit of $97.7 million or 29 cents per share — prior to the setbacks that began taking their toll on Valeant last summer.
Papa said he plans to keep core assets like Bausch & Lomb, Salix, dermatology, gastrointestinal and consumer products but will look to sell non-core assets to pay down debt and reduce the complexity of its overall business.