Why Valeant Pharmaceuticals Is Getting Investors' Attention

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Part 11
Why Valeant Pharmaceuticals Is Getting Investors' Attention PART 11 OF 13

Valeant’s Diversified Products Revenue May Drop in 2017

Diversified Products

Valeant Pharmaceuticals (VRX) has projected a year-over-year (or YoY) revenue drop of 7%–10% for its Diversified Products business in 2017. Furthermore, the declining revenue from products that lost their patent exclusivity in 2016 and those scheduled for patent expiry in 2017 may impact the segment’s financial performance in 2018. The company expects the Diversified Products segment’s revenue to drop 15% to 20% YoY in 2018. After 2018, the company anticipates some moderation in the rate of revenue decline for the segment and expects it to fall by mid-to-high single digits. From 2017 to 2020, Valeant has projected that Diversified Products revenue will decline at a CAGR (compound average growth rate) of 8% to 10%.

If the company manages to control the decline in revenue in 2017 despite the loss of patent exclusivities,  its share prices and that of the VanEck Vectors Pharmaceutical ETF (PPH) may be positively affected. Valeant makes up about 0.82% of PPH’s portfolio.

Valeant&#8217;s Diversified Products Revenue May Drop in 2017

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Revenue breakdown

In 2016, Valeant’s neurology portfolio witnessed a significant drop in revenue due to 20% lower volume and increased pricing pressures. Drug pricing has been affected due to increased rebates paid to managed care organizations, higher discounts offered to group purchasing organizations for Nitropress and Isuprel, as well as reduced price appreciation credits. In 4Q16, the company lost patent exclusivity for neurology drugs Sodium Edecrin, Ammonul, Mestinon, and Xenazine. The neurology portfolio’s weak performance was the major factor behind Diversified Products’ 15% YoY drop in revenue in 2016.

Besides neurology, the Diversified Products segment also comprises Valeant’s generic drug portfolio. The addition of authorized generic Zegerid to this segment helped boost the sales volume. Valeant competes with generic players Mylan (MYL), Teva Pharmaceutical Industries (TEVA), and Akorn Pharmaceuticals (AKRX). In the next article, we’ll study growth prospects for Valeant’s Bausch & Lomb/International business in greater detail.



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