Mr. J. Michael Pearson reports
VALEANT PHARMACEUTICALS REPORTS 2013 FIRST QUARTER FINANCIAL RESULTS
Valeant Pharmaceuticals International Inc. has released first-quarter financial results for 2013.
Highlights:
- First-quarter total revenue $1.068-billion, an increase of 25 per cent over the prior year 2013;
- First-quarter product sales $1.039-billion, an increase of 38 per cent over the prior year;
- Organic growth (same-store sales) was 6 per cent, excluding the impact from generics, primarily BenzaClin and Cesamet;
- Pro forma organic growth was 4 per cent, excluding the impact from generics, primarily BenzaClin and Cesamet;
- 2013 first-quarter generally accepted accounting principles loss per share of nine cents; cash earnings per share $1.30, an increase of 43 per cent over the prior year, excluding one-time items in 2012 first quarter;
- 2013 first-quarter GAAP operating cash flow $255-million; adjusted operating cash flow $345-million, an increase of 35 per cent over the prior year, excluding one-time items in 2012 first quarter;
- 2013 guidance for cash EPS raised to $5.55 to $5.85 despite entry of Zovirax generic ointment.
"Despite a slow January due to the integration of the Valeant and Medicis sales organizations, we delivered another solid quarter of strong growth in cash EPS and adjusted cash flow to our shareholders," stated J. Michael Pearson, chairman and chief executive officer. "We were particularly pleased with the strong organic growth of our emerging market segment, which was primarily driven by Poland, Russia, Brazil, Southeast Asia and South Africa, as well as the continued growth in many of our promoted brands."
Revenue
Valeant's total revenues were $1.068-billion, up 25 per cent compared with the first quarter of 2012, and product revenues were $1.039-billion, up 38 per cent versus the year-ago quarter. Valeant's U.S. promoted product sales increased 91 per cent to $479-million led by strong growth in key brands such as Acanya, CeraVe, Arestin, Dysport, Restylane, Perlane and AcneFree. On a same-store sales organic growth basis, U.S. promoted business increased 6 per cent despite increased generic competition in BenzaClin. Excluding the impact on BenzaClin sales, same-store sales organic growth for this portfolio would have been 12 per cent for the first quarter of 2013. Pro forma organic growth was flat as compared with the prior year due to the harmonization of wholesaler contracts between Valeant and Medicis. The wholesaler inventory levels of the Medicis dermatology portfolio were reduced from more than two months to approximately one month. Excluding this impact, pro forma organic growth was 7 per cent in the first quarter of 2013.
The company's U.S. neurology and other business delivered an EBITA (earnings before interest, taxes and amortization) contribution that was flat as compared with the prior year based on the stabilization of Wellbutrin XL and growth in several orphan drug products. This improvement was achieved in spite of a decrease in overall sales primarily from a reduction in partnered generic products which are low margin (for example diltiazem CD, nifedipine) and the slow launch of fenofibrate. The company expects the top-line growth in this division to be flat to slightly up for the full year 2013 and growth in EBITA versus 2012. The company's Canadian business reported strong growth in key brands for the quarter, including COLD-FX, CeraVe and the dermatology franchise, which was offset by the continued decline in Cesamet, while the company's Australian operations continued to perform well. Finally, Valeant's emerging markets segment performed extremely well in the first quarter and product sales increased 26 per cent driven by outstanding growth in Poland, Russia, Brazil, Southeast Asia and South Africa.
Financial performance
The company reported a net loss of $28-million for the first quarter of 2013, or a loss of nine cents per diluted share. On a cash EPS basis, adjusted income was $405-million, or $1.30 per diluted share. Excluding gains on the divestiture of two dermatology products and a foreign exchange gain related to the acquisition of iNova in the first quarter of 2012, cash EPS increased 43 per cent over the year-ago quarter. GAAP cash flow from operations was $255-million in the first quarter of 2013, and adjusted cash flow from operations was $345-million. The company's cost of goods sold was $285-million in the first quarter of 2013. After backing out the fair value adjustment to inventory, amortization expense and other items related to acquisitions, COGS represented 22 per cent of product sales, a decrease of three percentage points as compared with the first quarter of 2012 due to a favourable product mix, global plant consolidations and other initiatives. Selling, general and administrative expenses were $242-million in the first quarter of 2013, or approximately 23 per cent of revenue, which was an increase of 4 per cent over the prior year. SG&A was unusually high this quarter due to the integration of Medicis, and Valeant expects this ratio to return to historical levels for the remainder of 2013. Research and development expenses were $24-million in the first quarter of 2013, or approximately 2 per cent of revenue.
2013 guidance
The company is updating its previous cash EPS guidance and is now targeting cash EPS of $5.55 to $5.85 in 2013, despite a recent entry of Zovirax generic ointment, up from prior guidance of $5.45 to $5.75. Total revenue in the range of $4.4-billion to $4.8-billion and adjusted cash flow from operations of $1.5-billion to $1.75-billion are reaffirmed.
Conference call and webcast information
The company will host a conference call and a live Internet webcast along with a slide presentation today at 7:30 a.m. ET (4:30 a.m. PT), May 2, 2013, to discuss its first-quarter financial results for 2013. The dial-in number to participate on this call is 877-876-8393 confirmation code 41820189. International callers should dial 973-200-3961, confirmation code 41820189. A replay will be available approximately two hours following the conclusion of the conference call through May 9, 2013, and can be accessed by dialling 855-859-2056, or 404-537-3406, confirmation code 41820189. The live webcast of the conference call may be accessed through the investor relations section of the company's corporate website.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands of dollars, except per share amounts)
Three months ended
March 31,
2013 2012
Product sales $ 1,038,867 $ 750,880
Alliance and royalty 9,258 79,231
Service and other 20,230 25,992
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Total revenues 1,068,355 856,103
Cost of goods sold (exclusive of amortization of intangible
assets shown separately below) 284,904 224,196
Cost of services 14,951 18,820
Cost of alliances 478 68,820
Selling, general and administrative 241,899 177,286
Research and development 23,795 22,006
Acquisition-related contingent consideration (2,185) 9,839
Legal settlements and related fees 4,448 3,155
Restructuring, acquisition-related and other costs 56,884 69,842
Amortization of intangible assets 326,175 200,643
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951,349 794,607
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Operating income (loss) 117,006 61,496
Interest expense, net (153,719) (100,902)
(Loss) on extinguishment of debt (21,379) (133)
Gain (loss) on investments, net 1,859 2,059
Foreign exchange and other 1,439 24,299
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Income (loss) before income taxes (54,794) (13,181)
Recovery of income taxes (27,264) (260)
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Net (loss) income $ (27,530) $ (12,921)
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Earnings per share
Basic and diluted $ (0.09) $ (0.04)
We seek Safe Harbor.
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