Valeant Gains On Outlook, Plan To Reorganize — WSJ

By Anne Steele 
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Just a year after its stock rocketed to an all-time high, Valeant Pharmaceuticals International Inc. looks like an entirely different company.

About $80 billion of the Canadian drugmaker’s market value has been erased, as has its business model of acquiring drugs and raising their prices. Its former chief executive, Michael Pearson, has departed in favor of Joseph Papa.

And on Tuesday as it posted another quarterly loss, the company took steps to transform itself further, saying it would reorganize and sell some noncore assets to reduce its debt load as it works to retrench itself as a conventional pharmaceutical firm.

The company also backed its yearly guidance following a string of cuts, easing fears that it could trigger a debt-covenant breach. Investors cheered the affirmation, sending the stock up 25% — the biggest one-day percentage increase ever — to close at $28.16.

Still, that is nearly 90% lower than the level Valeant’s stock peaked at on Aug. 5 of last year, when it closed at $262.52. Since then, Valeant has battled a slate of concerns including scrutiny of its drug-price hikes, accounting problems, a brush with a potential debt default, and investigations by Congress and federal regulators.

Mr. Papa, who took the helm in May, said Tuesday that Valeant would be going in a “new strategic direction” that involves reorganizing the company and its reporting segments, breaking them into three main units.

By backing its guidance, Valeant essentially said it thinks it can earn enough to keep its financial ratios in compliance with its debt covenants. But Mr. Papa said in an interview that the company’s cushion isn’t “as much as investors want it to be” and that Valeant plans to ask lenders to amend the covenants to loosen restrictions.

That would be the second amendment to those agreements. In April, Valeant convinced holders of more than half of its loans to push back regulatory filing deadlines and loosen their financial conditions.

“Once we get this behind us, we can go back to talking more about our products, how we plan to improve patient lives, what our growth trajectory looks like, what the pipeline looks like,” Mr. Papa said on a call with investors. “That, we think, is a lot more exciting than all we’ve talked about bank covenants.”

As part of the shake-up, Valeant is looking at potential alternatives for some businesses it says it could sell for as much as $8 billion. Valeant said those asset sales and the company’s regular cash flows will help it shore up its balance sheet by cutting its debt by more than $5 billion over the next year and a half.

Mr. Papa said the quarter showed that the company is stabilizing. He recently named some new executives and reorganized Valeant’s management team, and prescriptions of a key drug, irritable bowel treatment Xifaxan, were 28% higher than a year earlier.

He also said the company is “very pleased” with its deal with Walgreens Boots Alliance Inc. After ending a collaboration with a mail-order pharmacy, Valeant joined with Walgreens to fill many of the prescriptions, though it was selling some of those drugs at a loss. On Tuesday, Mr. Papa said they improved profitability in early August.

“We still have challenges, but we’re making progress,” he said.

But Evercore analyst Umer Raffat pointed out that the results were worse than expected, meaning business has to improve in the second half to meet guidance. And some important segments struggled in the latest quarter.

Dermatology revenue more than halved, while ophthalmology skidded 25% lower. Neurology and branded generics revenue slipped 11%; gastrointestinal fell 10%.

Developed-market revenue fell 14%, mostly owing to lower pricing. Valeant has faced fierce criticism for its drug pricing after The Wall Street Journal reported in April of last year that the company had raised the prices of Isuprel and Nitropress, two cardiac-care drugs, by 525% and 212%, respectively, after acquiring the rights to the medicines.

In May, Valeant said it would expand discounts for the heart drugs. It has also formed a committee to determine drug prices.

On the call with investors Tuesday, Mr. Papa said Valeant is expecting and preparing for generic competition for those heart drugs within the next six to 12 months.

For the quarter, Valeant posted a loss of $302.3 million, wider than its year-earlier loss of $53 million.

Adjusted earnings fell to $1.40 a share, below analysts’ forecasts of $1.48. Revenue slid 11% to $2.42 billion, slightly below Wall Street’s expectations.

Jonathan D. Rockoff contributed to this article

Write to Anne Steele at Anne.Steele[a]

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