Valeant Earnings and Name Change: Progress But Risks Remain

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(Bloomberg) -- Valeant Pharmaceuticals International Inc. wants investors to believe that it’s not the same old Valeant — so much so, that it’s even changing its name. The truth is, it won’t be that easy to turn the page.

On Tuesday, the drugmaker released first-quarter earnings, beating analysts’ estimates for adjusted Ebitda and raising its full-year Ebitda and revenue guidance. The stock popped more than 14 percent in early trading as investors applauded these signs of incremental progress. Valeant also announced a change on the branding side: As of July, it will go by the name of Bausch Health Cos.

The company is seeking to affiliate itself with its most stable business — Bausch & Lomb eyecare — while ditching a name associated with its industry’s darkest practices. And rebranding may indeed help fade the reputational damage done by prior management’s fondness for aggressive price increase. But a heaping helping of lawsuits and investigations remain. That is to say, new name or not, Valeant will be haunted by its past misdeeds for some time to come. 

The company resolved a fraud investigation initiated by the California Department of Insurance with a relatively modest $1.875 million settlement on Monday, after paying $58 million in February to settle antitrust litigation related to the acne drug Solodyn. But other class-action lawsuits continue, as do proceedings with the U.S. Departments of Justice, the U.S. attorney’s offices in Massachusetts and New York, and the Securities and Exchange Commission. So far, Valeant has managed to keep the cost of its legal issues fairly low. But a good deal of risk remains. 

There’s also the matter of its heavy debt load — the eighth-largest in the biopharmaceutical industry — resulting from a series of questionable acquisitions. Some borrowings have been paid down, and the company has moved most of its maturitites into the 2020s. But it still must chip away at a large pile of debt with limited cash flow. 

This millstone will continue to weigh on the company; it sold off decent assets to pay down debt, and its obligations hurt its ability to invest in new products. 

As for its core business, Valeant’s solid results largely reflect the fact that competition for some of its older products hasn’t appeared as quickly as expected; that trend will eventually reverse. Meanwhile, the impact of new products is still theoretical. 

One of the company’s “significant seven” products that it expects to combine to produce more than a billion in peak sales is Siliq. The drug competes in the competitive psoriasis market and more than a year after its FDA approval, isn’t one of Valeant’s top 10 branded products. That means that its sales aren’t disclosed. The 10th medicine on that list — a cancer drug approved in 1999 — generated just $12 million in sales in the first quarter. The only one of the “significant seven” that did make the top 10 sales list was Relistor, which generated $20 million in revenue. 

Moreover, while the company’s adjusted numbers look good and the business appears to be stabilizing, it’s important to put the results in a broader context. The firm posted a net loss of $2.693 billion in the quarter due to a reduced tax benefit and an impairment charge related to its dermatology and gut drug businesses. 

A new name may eventually help Valeant establish a new identity. But it will be a long time before it’s a new company. 

©2018 Bloomberg L.P.

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