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Why Valeant Pharmaceuticals Is Getting Investors' Attention

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Part 4
Why Valeant Pharmaceuticals Is Getting Investors' Attention PART 4 OF 13

Headwinds Seen by Valeant Pharmaceuticals in 2016

Multiple headwinds

Valeant Pharmaceuticals (VRX) faced headwinds that affected the company’s profit margins in 2016. Attrition rates for its sales force increased as Valeant was required to make many voluntary and involuntary changes in its business model. The company also suffered due to the loss of exclusivity of its leading neurology drug, Nitropress, in December 2016. It faced pricing pressure, adverse foreign exchange movement, and the declining performance of its branded dermatology business in 2016.

If Valeant manages to offset these headwinds, it could boost its financial performance in 2017, which may also drive up its share price and that of the VanEck Vectors Pharmaceutical ETF (PPH). Valeant makes up about 0.82% of PPH’s portfolio.

Headwinds Seen by Valeant Pharmaceuticals in 2016
Headwinds Seen by Valeant Pharmaceuticals in 2016

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Financial performance in 2016

In 2016, Valeant reported revenue of close to $9.7 billion, a year-over-year (or YoY) decline of around 7.0%. Excluding a favorable top-line effect due to the acquisition of Salix Pharmaceuticals and Amoun Pharmaceutical, Valeant’s revenue dropped 13% YoY in 2016.

In 2016, peers Regeneron Pharmaceuticals (REGN), Alexion Pharmaceuticals (ALXN), and Incyte (INCY) reported revenue of around $4.9 billion, $3.1 billion, and $1.1 billion, respectively. While the Bausch & Lomb/International segment saw flat revenue performance, the Branded Rx and Diversified Products segments saw their revenue fall 12% and 15% YoY, respectively. The Bausch & Lomb/International segment benefited from the Amoun Pharmaceutical acquisition. However, this gain was partly offset by unfavorable foreign exchange fluctuation, which affected the segment’s 2016 revenue by around $125 million. In 2016, the steep decline in pricing and volume for Valeant’s dermatology products affected its Branded Rx segment’s revenue, despite the favorable impact of $334 million from the acquisition of Salix Pharmaceutical. In the next article, we’ll explore Valeant’s gastrointestinal business in greater detail.

 

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