On February 28, 2018 Valeant Pharmaceuticals International, Inc. (NYSE: VRX and TSX: VRX) ("Valeant" or the "Company" or "we") reported its fourth-quarter and full-year 2017 financial results (Press release, Valeant, FEB 28, 2018, http://ir.valeant.com/news-releases/2018/02-28-2018-120240355 [SID1234524266]).
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"2017 was a year of strong progress for Valeant as we delivered organic growth2 across nearly 75 percent of the Company while significantly reducing our debt and investing in our Bausch + Lomb, Salix and Ortho Dermatologics businesses," said Joseph C. Papa, chairman and CEO, Valeant.
"Since the end of the first quarter of 2016, we’ve reduced our total debt by more than 20 percent, and we will continue to address our debt, as well as reduce expenses. Additionally, we’re committed to growth through strategic investment in our core businesses, key products and late-stage pipeline. Altogether, these will get us to the final phase of our strategic plan – the transformation of Valeant," Mr. Papa continued.
Company Highlights
Executing on Core Businesses
The Bausch + Lomb/International segment comprised approximately 56% of the Company’s revenue in 2017
Reported revenue decreased by 1% compared to 2016; excluding foreign exchange and divestitures, revenue grew organically2 by 6% compared to 2016
Generated mid-single digit organic growth2 during each of the four quarters of 2017
The Salix business, which is reported within the Branded Rx segment, comprised approximately 18% of the Company’s revenue in 2017
Reported revenue grew by 2% and revenue grew organically2 by 5%, compared to 2016
Generated mid-single digit or higher organic growth2 during the second, third and fourth quarters of 2017
Continued to focus on stabilizing the dermatology business, which is reported within the Branded Rx segment
Recruited new leadership team and rebranded the business as Ortho Dermatologics
Increased dermatology sales force by more than 25% in January 2018
Launching New Products and Advancing Pipeline
Launched more than 100 new products globally in 2017
Launched AQUALOX contact lenses in Japan
Introduced Biotrue ONEday for Astigmatism daily disposable contact lenses in 20 countries in Europe
Received CE Mark from the European Commission for the Stellaris Elite Vision Enhancement system, including Vitesse
Received approval from the U.S. Food and Drug Administration (FDA) for and launched VYZULTA, a treatment option for glaucoma
Received FDA approval for SILIQ and launched it as the lowest-priced injectable biologic for moderate-to-severe plaque psoriasis in the United States based on total annual cost
Received FDA approval for LUMIFY, the only over-the-counter eye drop with low-dose brimonidine for the treatment of eye redness
Obtained 510(k) clearances from the FDA for Thermage FLX System, Stellaris Elite Vision Enhancement System and Vitesse
The FDA accepted New Drug Applications for:
DUOBRII3 (IDP-118), a topical treatment for plaque psoriasis; PDUFA action date of June 18, 2018
ALTRENO3 (IDP-121), an acne treatment in lotion form; PDUFA action date of Aug. 27, 2018
JEMDEL3 (IDP-122), a topical treatment for plaque psoriasis; PDUFA action date of Oct. 5, 2018
Reducing Debt, Extending Maturities and Resolving Legacy Issues
As of Feb. 28, 2018, reduced total debt by more than $6.7 billion since the end of the first quarter of 2016
Reduced total debt by more than $4.4 billion in 2017
Exceeded $5 billion commitment to pay down debt from divestiture proceeds and free cash flow earlier than the previously stated timing of February 2018
Reduced debt repayment requirements through 2020 by more than $10.8 billion since Dec. 31, 2016; eliminated all long-term debt maturities until 2020 and all mandatory amortization requirements
Completed 13 divestitures since the beginning of 2016, including skin care brands (CeraVe, AcneFree and AMBI), Dendreon Pharmaceuticals, iNova Pharmaceuticals, Obagi Medical Products and Sprout Pharmaceuticals
Achieved dismissals or other positive outcomes in resolving and managing litigation and investigations in more than 80 historical matters since the beginning of 2017
Agreed to resolve the Allergan securities litigation, subject to court approval
Agreed to resolve the SOLODYN antitrust litigations in February 2018, with the class settlement ($58 million) being subject to court approval
Fourth-Quarter and Full-Year Revenue Performance
Total revenues were $2.163 billion for the fourth quarter of 2017, as compared to $2.403 billion in the fourth quarter of 2016, a decrease of $240 million, or 10%.
Total revenues were $8.724 billion for the full year of 2017, as compared to $9.674 billion for the full year of 2016, a decrease of $950 million, or 10%. The decline was primarily driven by the impact of divestitures, and lower volumes in the U.S. Diversified Products segment, attributed to the previously reported loss of exclusivity for a basket of products, and the Ortho Dermatologics business. Revenues were also negatively affected by the unfavorable impact of foreign exchange. The decline was partially offset by higher volumes in our Bausch + Lomb/International segment, primarily the U.S. Consumer Products business, and increased international pricing in our Bausch + Lomb/International segment.
Revenues by segment were as follows:
Fourth-Quarter 2017
(in millions)
4Q 2017
4Q 2016
Reported
Change
Reported
Change
Change at
Constant
Currency4
Organic2
Change
Segment
Bausch + Lomb/International
$1,226
$1,261
($35)
(3%)
(5%)
4%
Branded Rx
$602
$744
($142)
(19%)
(19%)
(8%)
U.S. Diversified Products
$335
$398
($63)
(16%)
(16%)
(12%)
Total Revenues
$2,163
$2,403
($240)
(10%)
(11%)
(2%)
Full-Year 2017
(in millions)
FY 2017
FY 2016
Reported
Change
Reported
Change
Change at
Constant
Currency4
Organic2
Change
Segment
Bausch + Lomb/International
$4,871
$4,927
($56)
(1%)
0%
6%
Branded Rx
$2,475
$2,828
($353)
(12%)
(12%)
(6%)
U.S. Diversified Products
$1,378
$1,919
($541)
(28%)
(28%)
(27%)
Total Revenues
$8,724
$9,674
($950)
(10%)
(9%)
(4%)
Bausch + Lomb/International Segment
Bausch + Lomb/International segment revenues were $1.226 billion for the fourth quarter of 2017, as compared to $1.261 billion for the fourth quarter of 2016, a decrease of $35 million, or 3%. Excluding the impact of divestitures and foreign exchange, the Bausch + Lomb/International segment grew organically2 by approximately 4% compared to the fourth quarter of 2016.
Bausch + Lomb/International segment revenues were $4.871 billion for the full year of 2017, as compared to $4.927 billion for the full year of 2016, a decrease of $56 million, or 1%. Excluding the impact of divestitures of $240 million, primarily the skin care divestiture5, and foreign exchange, the Bausch + Lomb/International segment grew organically2 by approximately 6% compared to the full year of 2016, driven primarily by our International Rx, Global Consumer and Global Vision Care businesses.
Branded Rx Segment
Branded Rx segment revenues were $602 million for the fourth quarter of 2017, as compared to $744 million for the fourth quarter of 2016, a decrease of $142 million, or 19%. The Salix business grew revenue by 3% and generated organic growth2 of 5% compared to the fourth quarter of 2016.
Branded Rx segment revenues were $2.475 billion for the full year of 2017, as compared to $2.828 billion for the full year of 2016, a decrease of $353 million, or 12%. The decrease primarily reflects lower volumes in the Ortho Dermatologics business, and the impact of divestitures of $194 million, particularly from the divestiture of Dendreon Pharmaceuticals. Compared to the full year of 2016, the Salix business grew revenue by 2% and generated organic growth2 of 5%.
U.S. Diversified Products Segment
U.S. Diversified Products segment revenues were $335 million for the fourth quarter of 2017, as compared to $398 million for the fourth quarter of 2016, a decrease of $63 million, or 16%.
U.S. Diversified Products segment revenues were $1.378 billion for the full year of 2017, as compared to $1.919 billion for the full year of 2016, a decrease of $541 million, or 28%. The decline was primarily driven by decreases attributed to the previously reported loss of exclusivity for a basket of products.
Operating Income/Loss
Operating loss was $322 million for the fourth quarter of 2017, as compared to an operating income of $150 million for the fourth quarter of 2016, a decrease of $472 million.
Operating income was $102 million for the full year of 2017, as compared to an operating loss of $566 million for the full year of 2016, an improvement of $668 million. The improvement in our operating results for the full year of 2017 reflects gains from divestitures, lower operating expenses, the net decrease in non-cash charges for impairments and net favorable adjustments to acquisition-related contingent consideration. The improvement was partially offset by lower revenues coming from divestitures, the U.S. Diversified Products segment due to the loss of exclusivity for a basket of products, and the Ortho Dermatologics business.
Income Tax
In 2017 the Company recorded an income tax benefit of $4.145 billion, which was primarily attributed to an internal tax reorganization effort, which began in the fourth quarter of 2016 and was completed in the third quarter of 2017, and provisional benefits related to changes under the Tax Cuts and Jobs Act of 2017.
Net Income
Net income for the fourth quarter of 2017 was $513 million, as compared to a net loss of $515 million for the same period in 2016, an increase of $1.028 billion.
Net income for the full year of 2017 was $2.404 billion, as compared to a net loss of $2.409 billion for the full year of 2016, an improvement of $4.813 billion. The change in net income for the full year of 2017 is mainly attributed to an increase in the benefit from income taxes, as described above.
Adjusted net income (non-GAAP) the fourth quarter of 2017 was $347 million, as compared to $443 million for the fourth quarter of 2016, a decrease of $96 million. Adjusted net income (non-GAAP) for the full year of 2017 was $1.349 billion, as compared to $1.916 billion for the full year of 2016, a decrease of $567 million.
Operating Cash
Cash provided by operating activities was $578 million for the fourth quarter of 2017. Cash provided by operating activities was $2.290 billion for the full year of 2017, as compared to $2.087 billion for the full year of 2016, an increase of $203 million, or 10%. The increase in 2017 was primarily due to improvements in operating expenses and working capital.
EPS
GAAP Earnings Per Share (EPS) Diluted for the fourth quarter of 2017 was $1.45, as compared to ($1.47) for the fourth quarter of 2016. GAAP EPS Diluted for the full year of 2017 was $6.83, as compared to ($6.94) for the full year of 2016.
Adjusted EBITDA(non-GAAP)
Adjusted EBITDA (non-GAAP) was $875 million for the fourth quarter of 2017, as compared to $1.047 billion for the fourth quarter of 2016, a decrease of $172 million.
Adjusted EBITDA (non-GAAP) was $3.638 billion for the full year of 2017, as compared to $4.305 billion for the full year of 2016, a decrease of $667 million. The decline for the full year of 2017 was primarily driven by lower revenues coming from divestitures, the U.S. Diversified Products segment due to the loss of exclusivity for a basket of products, and the Ortho Dermatologics business. The decline was partially offset by organic growth2 in the Bausch + Lomb/International segment and the Salix business, and improved management of operating expenses.
2018 Financial Outlook
Valeant has provided guidance for the full year of 2018, as follows:
Full-Year Revenues in the range of $8.10 – $8.30 billion
Full-Year Adjusted EBITDA (non-GAAP) in the range of $3.05 – $3.20 billion
Other than with respect to GAAP Revenues, the Company only provides guidance on a non-GAAP basis. The Company does not provide a reconciliation of forward-looking Adjusted EBITDA (non-GAAP) to GAAP net income (loss), due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. In periods where significant acquisitions or divestitures are not expected, the Company believes it might have a basis for forecasting the GAAP equivalent for certain costs, such as amortization, which would otherwise be treated as non-GAAP to calculate projected GAAP net income (loss). However, because other deductions (such as restructuring, gain or loss on extinguishment of debt and litigation and other matters) used to calculate projected net income (loss) vary dramatically based on actual events, the Company is not able to forecast on a GAAP basis with reasonable certainty all deductions needed in order to provide a GAAP calculation of projected net income (loss) at this time. The amount of these deductions may be material and, therefore, could result in projected GAAP net income (loss) being materially less than projected Adjusted EBITDA (non-GAAP).
Additional Highlights
Valeant’s cash, cash equivalents and restricted cash (including non-current) were $797 million at Dec. 31, 2017
The Company’s availability under the Revolving Credit Facility was approximately $1.2 billion at Dec. 31, 2017
During the fourth quarter of 2017, Valeant’s corporate credit ratings were revised to stable by Moody’s Investors Service and remained unchanged by other ratings services