Valeant Pharmaceutical Earnings: Changes Only Skin Deep

(Bloomberg Gadfly) -- Emulating a questionable re-branding role model, Valeant Pharmaceuticals International Inc. referred to itself as "New Valeant" in its quarterly earnings slides on Tuesday. Don't expect New Valeant to be much more successful than New Coke. 

The perma-troubled specialty pharmaceutical company has taken some positive steps under its new leadership team and CEO, including meeting its own reduced full-year revenue guidance for once and setting relatively conservative future goals. But there's not much that's new about the New Valeant.

Each of the company's three units saw sales decline year-over-year in the quarter. Just two of its 15 reported sub-segments grew sales over the same period. Generic competitors will pummel revenue this year and into 2018. 

"New Valeant" initiatives aimed at an eventual turnaround include boosting the sales force at its Salix unit, increasing R&D investment, fixing its dermatology business, boosting promotion for "underappreciated" older assets, re-launching female sexual dysfunction drug Addyi, and focusing on new product launches.

Many of these ideas are not that new, and all have major barriers to success: 

• The problem with Salix, a gut-drug business acquired in 2015 for $13.4 billion, may be the drugs and competition, not the sales force.
• Valeant has no track record of successfully developing drugs, and conceded during its conference call Tuesday that its ability to do R&D is hampered by its debt load. 
• The collection of "underappreciated" drugs Valeant wants to promote are arguably the sort of old, marginally innovative and/or competition-prone assets that have caused it sales troubles in the past.
• It's unlikely any relaunch could save Addyi, a drug acquired in 2014 that has questionable benefit and an unquestionably dangerous side-effect profile. 
• Valeant's nearest-term potential product launch, the psoriasis drug Siliq, may end up costing it money rather than turning around the dermatology franchise, as the company hopes. Some time this year it will enter a highly competitive drug class with entrants from industry giants Eli Lilly & Co., Johnson & Johnson, and Novartis AG, with the added burden of an FDA warning for suicidal thoughts and burdensome prescribing guidelines those other drugs don't have. 

However you label it, Valeant remains a poorly thought-out collection of mostly declining assets, a roll-up built on a foundation of cheap debt, overconfidence, and tax arbitrage. Its debt load -- $29.85 billion at the end of 2016, just barely down from the $30.26 at the end of 2015 -- limits its flexibility. Valeant expects around $1.9 billion in proceeds from already announced divestitures. But the prospects seem slim of generating enough cash to give itself enough room to maneuver. 

Valeant can't be new until this dynamic changes, and it's still not clear how that will happen. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

To contact the author of this story: Max Nisen in New York at mnisen@bloomberg.net.

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.