Valeant shares slump as full-year guidance is slashed and losses mount


Investors reaching for the painkillers: Valeant's turn around is looking to be more difficult than anticipated (Source: Getty)

Shares in Valeant – the embattled Canadian pharma giant that has struggled under problems with its business model and a high profile accounting scandal this year – have slumped in the pre-market.

Valeant revealed this morning a big loss for the third quarter and cut its full year sales and earnings guidance – despite things looking up when it posted its last quarter

The numbers

Today's share price falls have been put down to Valeant revising down its full year guidance.

Total revenue for the year is now expected to be in the range $9.55bn to $9.65bn, from previous range of $9.9bn to $10.1bn.

Adjusted earnings per share are now expected to be $5.30 to $5.50, from previous range of $6.60 to $7.

Read more:  Large Valeant shareholder gives up stake amid mounting losses

For the third quarter total revenues were $2.48bn as compared to $2.79bn in the third quarter of 2015, a decrease of 11 per cent, which the company put down to a decline in product sales in existing businesses.

Third quarter revenues were also impacted by negative foreign currency exchange, as well as divestitures and discontinuations, which were partially offset by incremental product sales revenues from acquisitions completed in 2015.

Valeant lost $3.49 per share, compared to a profit of $0.14 in the third quarter of 2015. Net losses in the third quarter hit $1.22bn as compared to net income of $49.5m for the same period last year. 

Analysts were looking for adjusted earnings of $1.73 a share on $2.49bn in revenue, according to a Thomson Reuters poll.

Costs were also on the up. The cost of goods sold increased $15m, or two per cent, to $649m in the third quarter of 2016 as compared to $635m in the third quarter of 2015, primarily due to an increase related to acquisitions completed in 2015.

Why it's interesting

Shares of the company tumbled around 10 per cent in the pre-market, meaning the stock is heading for its lowest point in six years at the market open. 

Valeant has been strongly criticised this year for its pricing, business and accounting practices and is being probed by US regulators and Congress. It hit a low point when it was hauled in front of US politicians to explain how it priced its drugs.

Valeant shares climbed to a peak in the summer of 2015 before losing over 90 per cent of their value as things began to unravel. The company claimed it was reinventing the big pharma industry with its "buy up assets low, sell drugs high" strategy. 

The company – which is sitting on a debt pile of more than $30bn – has said it was in talks with third parties to sell the Salix division and some other assets.

Read more: Last year the former the Valeant CEO said he felt good about 2016

It has today written down the value of the Salix business in a further blow to investors and taking a goodwill impairment charge of $1.05bn.

What the company said

Joe Papa, Valeant chairman and chief executive, who has the unenviable task of turning around the company, said the company made further progress toward establishing “the new Valeant” during the past quarter.

He said: 

We have, where appropriate, begun to centralize some parts of the business, and hired two key senior executives: Paul Herendeen, chief financial officer, and Dr. Louis Yu, chief quality officer.

We also have started to present our financial results under three operating and reportable segments, which we believe will help clarify areas of strength and provide additional transparency.

While we have revised our expectations for the remainder of 2016, I continue to be encouraged by the commitment of our employees who work each day toward meeting our mission of helping improve people's lives through our healthcare products.

In short

Investors aren't happy and the future is looking bleak for the drugmaker.