Valeant `Turnaround' Looks More Like a Slow Crawl as Sales Fall

(Bloomberg) -- Valeant Pharmaceuticals International Inc.'s CEO said in late 2016 that he saw running the drugmaker as the “turnaround opportunity of a lifetime.” That's not what Wednesday's quarterly results suggest.

On Wednesday, the company said that fourth-quarter sales fell 10 percent from a year ago, with lower revenue in all three of its major units. Its forecast for 2018 isn't much better, with sales and profit projections coming up short of what analysts had expected.

Chief Executive officer Joe Papa took over in 2016 after the previous management was ousted. The drugmaker had faced intense public scrutiny of its business practices, including its relationship with a specialty pharmacy, its aggressive approach to raising prices of drugs it acquired, and the large debt it piled up as it did deal after deal, boosting it into the ranks of the world's largest drug companies.

Papa has sold off some of the assets acquired in that deal binge, and paid down a chunk of what it owes to creditors.

“We're committed to growth through strategic investment in our core businesses, key products and late-stage pipeline,” Papa said in the statement Wednesday. “These will get us to the final phase of our strategic plan -- the transformation of Valeant.”

While he's put the company on steadier footing, that transformation may not end up being of the caterpillar-to-butterfly type. Valeant projected that sales next year will be between $8.1 and $8.3 billion, about what they were in 2014.

The shares fell as much as 12 percent in their biggest intraday drop since December, and were trading at $16.44 at 12:12 p.m. in New York.

‘Slow the Declines'

“While Valeant is managing to slow the declines, we do not see growth from new products being able to replace the declines in some of the key business lines,” said Prakash Gowd, an analyst with CIBC Capital Markets.

Starting this year, Valeant said it expects new products to make up a growing portion of its sales.

In a slide called “Return to Growth,” a colored bar chart, not labeled with any dollar amounts or percentages, appears to show rising overall sales starting in 2018, with new products making up about a third of revenue by 2021.

Chief Financial Officer Paul Herendeen said that before the analysts get out “their micrometers,” that “the information was not to scale.”

Valeant has partly mitigated one of its biggest risks. Papa said that the company has paid down about 20 percent of what it owed since the end of first quarter of 2016, in part by selling assets.

Valeant's bonds were among the worst performers in the Bloomberg Barclays High Yield Index Wednesday in early trading. Its 6.125 percent notes due 2025 dropped 2 cents on the dollar to 86.75 cents as of 8:04 a.m. in New York, according to Trace bond-price data. They were trading as low as 72.875 cents last April.

Papa said the company remained focused on “resolving legacy issues and derisking the balance sheet.”

In a presentation to investors Wednesday, Valeant said it had $25.7 billion in debt at the end of the year, down from $30.2 billion at the end of 2016.

Its dermatology products, once one of Valeant's biggest drivers of growth, are struggling as well. The company is seeing “lower volumes and net realized prices than in the past,” Herendeen, the CFO, said on the call.

He blamed the decline for what he called changes in the dermatology market since the drugmaker acquired the therapies.

--With assistance from Molly Smith and Brandon Kochkodin

To contact the reporter on this story: Rebecca Spalding in New York at rspalding@bloomberg.net.

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Timothy Annett

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