Revenue for 4Q15
On March 15, 2016, Valeant Pharmaceuticals International (VRX), headquartered in Laval, Quebec, Canada, announced preliminary earnings for 4Q15.
During the quarter, the company reported sales of $2.8 billion against the guided $2.7 billion–$2.8 billion. For revenue, the company presented a positive earnings surprise of 0.8%.
The graph above demonstrates actual versus estimated revenues for Valeant over the past five quarters. During the fourth quarter of 2015, the company’s top 30 drugs contributed 52% to its total revenue. None of the drugs contributed more than 10% to the total revenue. Xifaxan, a leading revenue contributor, fetched $210 million, which was ~7.5% of total sales for the quarter. The drug competes with Allergan’s (AGN) Viberzi.
Was high or unjustified pricing a problem for Valeant?
Valeant’s woes started after it began charging higher and sometimes unjustified pricing for acquired drugs. Alexion Pharmaceuticals (ALXN) and BioMarin Pharmaceutical (BMRN) also follow premium pricing for their drugs.
The major difference between these companies and Valeant is that ALXN and BMRN conduct extensive clinical trials for pipeline molecules and launch the products after receiving approval from the FDA (U.S. Food and Drug Administration). Valeant doesn’t invest much in R&D (research and development) and has a strategy to acquire neglected, old, generic, or late-development-stage drugs and sell them after increasing the prices.
EPS for 4Q15
Wall Street analysts expected Valeant’s EPS (earnings per share) for 4Q15 to be $2.62. However, the company reported EPS of $2.50, leading to a -4.5% earnings surprise.
The company had expected non-GAAP (generally accepted accounting principles) EPS to be $2.55–$2.65. The lower-than-anticipated EPS was due to lower sales of high margin products resulting from channel destocking.
The stock price of a company is very sensitive to economic, industry, or business-specific news. To diversify the risk of investing directly in the equity of Valeant Pharmaceuticals, investors can look for options such as the Global X Guru Index ETF (GURU). GURU holds 1.4% of its total holdings in Valeant Pharmaceuticals.
In the next part of this series, we’ll look at Valeant’s share price and whether it can recover from its recent fall.