Long Awaited Filing of Results Leaves More Questions For Valeant Pharmaceuticals Intl Inc (NYSE:VRX) Shareholders

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Wall Street is pretty disappointed by Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s quarter and rightfully so. The stock is down around 14% as of writing, after dropping over 20 percent. There is not a lot to like about the quarter as U.S. Organic growth was -21.5% percent, while Rest of the World Organic Growth came in at just -2.2%, with the company saying they needed 3 to 4 months for inventory levels to stabilize.

Non-GAAP, EBITDA came in at just over $1B, which would be a troublesome rate that could bring debt covenant issues into question. The company believes they can get it to $4.8 billion to $4.95 billion for the year, which would be a significant downgrade from the previously expected $5.6 to $5.8 billion. This despite the fact, the company still reported total long term debt of $31.3 billion, up from $30.2 billion as of December 31st, 2015. The company maintains that it will be in compliance with debt covenants this year. Valeant has $1.2B in cash at present and expects to generate $1.73B in free cash flow in 2016.

Valeant remains a high risk proposition. Pharmaceutical companies are likely to face a challenging market for price increases and may even have to decrease prices. Valeant will no longer be in the acquisition market and has already slashed Research and Development. The company will have to focus energy on paying down debt with any available cash flow to remain about debt covenants.

Valeant CEO, Joseph Papa’s expressed confidence that he could stabilize the business but called it a multi-year process. Mr. Papa’s plan focuses on add new talent and rebuilding relationships with patients, prescribers, and investors. In dermatology in particular the company has experienced average selling prices that are negative and are essentially taping dollar bills to drugs as they go out the door.

Many question marks remain for Valeant and investors are hoping this represents a clean-out quarter that often accompanies a New CEO.  The company expects 20 new product launches this year, but has a very thin margin of error with it’s debt pile. Stories like the recent Vanity Fair piece, which highlighted a drug Syprine, bring into question what sort of concessions the company could have to make on drug pricing and whether there is potentially more pain to be suffered. Syprine, which can be had for $1 a pill in some countries, now has a list price of around $300,000 for a year’s supply in the United States.

New CEO Joesph Papa has pledged a more disciplined approach to pricing and conceded that the company has made mistakes in its past. Among others, Syprine is one of the drugs that they have pledged to review. For now the smoke hasn’t cleared and Mr. Papa has his work cut out for him, especially at a time healthcare costs in America are continuing to increase rapidly and people are looking to place blame.

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