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Why Valeant Pharmaceuticals Is Getting Investors' Attention

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Part 3
Why Valeant Pharmaceuticals Is Getting Investors' Attention PART 3 OF 13

Valeant’s Net Profit Margins Expected to Narrow in 2017

Net profit margins

Valeant Pharmaceuticals (VRX) has projected its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to fall $3.6 billion–$3.7 billion. Besides lower revenue, the company will also have to bear $1.9 billion in cash interest in 2017, which includes $100 million in amortized deferred financing costs.

Valeant&#8217;s Net Profit Margins Expected to Narrow in 2017

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Wall Street analysts have projected that Valeant’s 2017 adjusted non-generally accepted accounting principles (or non-GAAP) net profit margins would be around 15.5%, which represents a year-over-year (or YoY) narrowing of around 430 basis points.

If Valeant manages to surpass these net profit margin projections in 2017, its share price and that of the Global X Top Guru Holdings Index ETF (GURU) may be affected positively. Valeant makes up about 0.19% of GURU’s portfolio.

In 2017, peers Regeneron Pharmaceuticals (REGN), Alexion Pharmaceuticals (ALXN), and Incyte (INCY) are expected to report adjusted non-GAAP net profit margins close to 27.7%, 34.5%, and $5.3%, respectively.

Late-stage research pipeline

On February 16, 2017, AstraZeneca and Valeant Pharmaceuticals announced that the FDA has approved Siliq (brodalumab) as a therapy for moderate-to-severe plaque psoriasis in adult patients. On February 27, 2017, Valeant declared that it had refiled a new drug application (or NDA) for latanoprostene bunod ophthalmic solution, a treatment option for open-angle glaucoma (or OAG) patients. On December 8, 2016, Valeant announced positive results of a phase 3 trial evaluating IDP-118 as a therapy for plaque psoriasis patients.

On February 21, 2017, Valeant entered into an agreement with EyeGate Pharma to obtain global manufacturing and marketing rights for its EGP-437 combination therapy and EyeGate II Delivery System, which is used as post-operative care for ocular surgery patients. On February 23, 2017, Valeant entered into a collaboration with Nextcell Medical to further strengthen its Obagi skincare franchise. Valeant is also expanding its Bausch & Lomb lens portfolio in 2017.

By focusing on its late-stage research pipeline, Valeant expects to restore its profitability. In the next article, we’ll explore the impact of headwinds on the performance of Valeant’s business segments in 2016.

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