On August 9, 2016 Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) ("Valeant" or the "Company") reported second quarter 2016 financial results (Press release, Valeant, AUG 9, 2016, http://ir.valeant.com/news-releases/2016/08-09-2016-110228006 [SID:1234514390]).

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"We continue to make progress towards stabilizing the organization," said Joseph C. Papa, chairman and chief executive officer. "We are also announcing a new strategic direction for Valeant today, which, at its heart has a mission to improve patients’ lives, and will involve reorganizing our company and reporting segments. I am continuously encouraged by the commitment of our employees who work hard daily, rebuilding our relationships with prescribers, patients and payors, and regaining the trust of our debt holders and shareholders. Although it will take time to implement and execute our turnaround plan, I am confident that we will show progress in the coming quarters."

Total Revenues
Total revenues decreased 11% to $2.42 billion in the second quarter of 2016 as compared to $2.73 billion in the second quarter of 2015, driven primarily by a decline in product sales revenues from our existing business, as well as negative foreign currency exchange impact, partially offset by incremental product sales revenues from acquisitions completed in 2015.

In the Developed Markets segment, revenues declined 14%, driven mainly by a decline in product sales revenue from our existing business, primarily as a result of lower average realized prices which were in turn impacted by higher managed care rebates, lower price appreciation credits, our fulfillment agreement with Walgreens, and higher group purchasing organization (GPO) rebates. These factors were partially offset by an increase in contribution from acquisitions completed in 2015, primarily from Salix Pharmaceuticals, Ltd. and certain assets of Dendreon Corporation.

In the Emerging Markets segment, revenues were flat as compared to the second quarter of 2015, primarily due to a small decline in the existing business and negative foreign currency exchange impact, which were partially offset by incremental product sales revenue from acquisitions completed in 2015.

Operating Expenses
Cost of goods sold were $647 million in the second quarter of 2016 as compared to $670 million in the second quarter of 2015, a decrease of 3% primarily due to a decline in sales volumes, partially offset by increased sales from acquisitions completed in 2015, primarily of Salix and Amoun Pharmaceutical Company S.A.E.

Selling, general and administrative expenses ("SG&A") were $672 million in the second quarter of 2016, as compared to $686 million in the second quarter of 2015. As a percentage of revenue, SG&A was 28% in the second quarter of 2016, as compared to 25% in the second quarter of 2015.

Research and development ("R&D") expenses were $124 million in the second quarter of 2016 as compared to $81 million in the second quarter of 2015, primarily due to the development programs related to the Company’s dermatology product portfolio, as well as spending on brodalumab and programs acquired in the Salix acquisition.

Net Income (Loss)
Net loss in the second quarter of 2016 was $302 million as compared to a net loss of $53 million in the second quarter of 2015. Adjusted net income (non-GAAP) in the second quarter of 2016 was $488 million as compared to $751 million in the second quarter of 2015.

Cash Flow
Cash flow from operations was $448 million in the second quarter of 2016 as compared to $411 million in the second quarter of 2015, an increase of 9% over the same period in 2015.

Business Development
We have taken steps to streamline our portfolio in the second quarter. We have sold, or agreed to sell, the brodalumab EU rights, Synergetics USA OEM business, and Ruconest for a total combined upfront payment of $181 million and additional consideration up to $329 million for achieving specific approval and sales milestones.

Specific to Ruconest, today the Company entered into a definitive agreement to divest all North American commercialization rights to Ruconest (recombinant human C1 esterase inhibitor) to Pharming Group N.V. ("Pharming"). Under the terms of the agreement, Pharming will pay Valeant aggregate consideration of up to $125 million, including an upfront fee of $60 million payable upon closing and certain sales-based milestone payments of up to $65 million. The transaction is subject to customary closing conditions, in addition to Pharming obtaining certain financing. Ruconest was classified as held for sale as of June 30, 2016 and an impairment loss of $199 million was recorded in the second quarter of 2016.

2016 Guidance
The Company is reconfirming its full year 2016 guidance. Total revenue is expected to be in the range of $9.9 – $10.1 billion. Adjusted EPS (non-GAAP) is expected to be in the range of $6.60 – $7.00. Adjusted EBITDA (non-GAAP) is expected to be in the range of $4.80 – $4.95 billion.

Other than with respect to total revenue, the Company only provides guidance on a non-GAAP basis. The Company does not provide reconciliations of forward-looking Adjusted EPS (non-GAAP) and Adjusted EBITDA (non-GAAP) to GAAP, due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations. In periods where there are not expected to be significant acquisitions or divestitures, the Company believes it might have a basis for forecasting the GAAP equivalent for certain costs, such as amortization, that would otherwise be treated as non-GAAP to calculate projected net income (loss). However, because other deductions (such as restructuring, gain or loss on extinguishment of debt and litigation settlements) 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 amounts of these deductions may be material and, therefore, could result in projected GAAP EPS and GAAP net income (loss) being materially less than projected Adjusted EPS (non-GAAP) and Adjusted EBITDA (non-GAAP).