Valeant Pharmaceuticals Reports 2011 First Quarter Financial Results

May 09, 2011

MISSISSAUGA, Ontario, May 9, 2011 /PRNewswire via COMTEX/ --

  • 2011 First Quarter Total Revenue $565 million, including $36 million related to out-license of Cloderm
  • Pro forma organic growth for the combined company, excluding the impact of foreign exchange and acquisitions, was approximately 7%
    • Excluding impact from Diastat and Efudex, pro forma organic growth for the combined company was approximately 11%
  • 2011 First Quarter GAAP EPS $0.02; Cash EPS $0.62
    • Excluding impact from Cloderm out-licensing, Cash EPS was $0.56
  • 2011 First Quarter GAAP Cash Flow from Operations was $86 million; Adjusted Cash Flow from Operations was $204 million
  • 2011 Guidance increased to $2.65 - $2.90 Cash EPS

Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) announces first quarter financial results for 2011.

"Our performance in the first quarter is a strong start to what I believe will be another successful year for Valeant," said J. Michael Pearson, chairman and chief executive officer. "Our specialty businesses performed well and our branded generic operations, in particular Central Europe, exceeded our expectations this quarter. This strong performance is a testament to our diversified business model that gives us the ability to pursue acquisition opportunities, while continuing to deliver strong operating results."

Revenue

Total revenue was $565.0 million in the first quarter of 2011 as compared to $219.6 million in the first quarter of 2010. Included in total revenue was $36.0 million of alliance and royalty revenue related to the out-license of product rights for Cloderm, a mid-potency steroid with an annual revenue run rate of approximately $7 million, that was completed on March 31, 2011. Product sales were $500.4 million in the first quarter of 2011, as compared to $212.0 million in the year-ago quarter. These increases are primarily due to the acquisition of Valeant Pharmaceuticals International (Legacy Valeant) by Biovail Corporation (Legacy Biovail), which was completed in September 2010. In connection with the acquisition, Biovail was renamed Valeant Pharmaceuticals International, Inc. Results for the first quarter of 2010 only reflect Legacy Biovail revenues and do not include any revenues from Legacy Valeant.

Pro forma revenue growth for the combined company (combined Legacy Biovail and Legacy Valeant product sales and royalties) was approximately 21% for the first quarter of 2011. Pro forma organic revenue growth, excluding the impact of foreign exchange and acquisitions, for the combined company was approximately 7% for the first quarter of 2011. Excluding the genericization impact from Diastat and Efudex, pro forma organic growth for the combined company was approximately 11%. Wellbutrin and Zovirax, Valeant's largest products, delivered 2% and 38% growth in the first quarter of 2011, respectively.

Operating Expenses

The Company's cost of goods sold was $169.3 million in the first quarter of 2011 and represented 34% of product sales. This number in the first quarter of 2011 included a $29.9 million fair value adjustment to inventory and a $2.0 million amortization expense adjustment related to the acquisition of Legacy Valeant by Legacy Biovail. Excluding the adjustments, cost of goods for the first quarter of 2011 were 27% of product sales.

Selling, General and Administrative expenses were $139.5 million in the first quarter of 2011, which includes a $22.9 million step-up in stock based compensation expenses related to the acquisition of Legacy Valeant. Excluding the step-up in stock based compensation, SG&A was approximately 21% of revenue. Research and Development expenses were $13.7 million in the first quarter of 2011, or approximately 3% of revenue.

Net Income and Cash Flow from Operating Activities

The Company reported net income of $6.5 million for the first quarter of 2011, or $0.02 per diluted share. On an adjusted Cash EPS basis, adjusted income was $205.1 million, or $0.62 per diluted share. Excluding the purchase price adjustment on Cloderm as a result of the merger between Legacy Biovail and Legacy Valeant, adjusted income was $186.3 million, or $0.56 per diluted share.

GAAP cash flow from operating activities was $86.3 million in the first quarter of 2011, and adjusted cash flow from operations was $203.6 million in the first quarter of 2011.

Securities Repurchase Program

Since December 31st, 2010, under Valeant's securities repurchase program, the company repurchased an additional $63.8 million principal amount of the 5.375% senior convertible notes due 2014, for an aggregate purchase price of $181.3 million, bringing the aggregate repurchases to $190 million of the $350 million face value of the 5.375% convertible notes.

As previously announced, Valeant repurchased 7.4 million common shares of the Company's common stock held by ValueAct Capital in March 2011 for approximately $275 million. In addition on May 6, 2011, the Company entered into an agreement to purchase approximately 4.5 million of the Company's common shares from ValueAct for $224.9 million. This purchase is expected to close in mid-May, in advance of the redemption of the 4.0% Convertible Notes, which we expect to settle fully in common shares upon conversion of the notes.

2011 Guidance

The Company is updating its previous Cash EPS guidance and is now targeting Cash EPS of $2.65 to $2.90 in 2011, up from prior guidance of $2.45 to $2.70.

Conference Call and Webcast Information

The Company will host a conference call and a live Internet webcast along with a slide presentation today at 10:00 a.m. ET (7:00 a.m. PT), May 9, 2011 to discuss its first quarter financial results for 2011. The dial-in number to participate on this call is (877) 295-5743, confirmation code 63195016. International callers should dial (973) 200-3961, confirmation code 63195016. A replay will be available approximately two hours following the conclusion of the conference call through May 16, 2011 and can be accessed by dialing (800) 642-1687, or (706) 645-9291, confirmation code 63195016. The live webcast of the conference call may be accessed through the investor relations section of the Company's corporate website at http://www.valeant.com/.

About Valeant

Valeant Pharmaceuticals International, Inc. (NYSE/TSX:VRX) is a multinational specialty pharmaceutical company that develops and markets a broad range of pharmaceutical products primarily in the areas of neurology, dermatology and branded generics. More information about Valeant can be found at http://www.valeant.com/.

Forward-looking Statements

This press release may contain forward-looking statements, including, but not limited to, statements regarding our performance, acquisitions, the closing of the repurchase from ValueAct, the redemption and settlement of our 4% convertible notes, and anticipated Cash EPS for 2011. Forward-looking statements may be identified by the use of the words "anticipates," "expects," "intends," "plans," "should," "could," "would," "may," "will," "believes," "estimates," "potential," or "continue" and variations or similar expressions. These statements are based upon the current expectations and beliefs of management and are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, risks and uncertainties discussed in the Company's most recent annual or quarterly report filed with the Securities and Exchange Commission ("SEC") and risks and uncertainties relating to the proposed merger, as detailed from time to time in Valeant's filings with the SEC and the Canadian Securities Administrators ("CSA"), which factors are incorporated herein by reference. Readers are cautioned not to place undue reliance on any of these forward-looking statements. Valeant undertakes no obligation to update any of these forward-looking statements to reflect events or circumstances after the date of this press release or to reflect actual outcomes.

Note on Guidance

The guidance contained in this press release is only effective as of the date given, May 9, 2011, and will not be updated or confirmed until the Company publicly announces updated or affirmed guidance.

Non-GAAP Information

To supplement the financial measures prepared in accordance with generally accepted accounting principles (GAAP), the Company uses non-GAAP financial measures that exclude certain items, such as amortization of inventory step-up, amortization of alliance product assets and PP&E step up, stock-based compensation step-up, restructuring and acquisition-related costs, acquired in-process research and development ("IPR&D"), legal settlements, the impact of currency fluctuations, acquisitions, amortization and other non-cash charges, amortization of deferred financing costs, debt discounts and ASC 470-20 (FSP APB 14-1) interest, loss on extinguishment of debt, and (gain) loss on investments, net, and adjusts tax expense to cash taxes. Management uses non-GAAP financial measures internally for strategic decision making, forecasting future results and evaluating current performance. By disclosing non-GAAP financial measures, management intends to provide investors with a meaningful, consistent comparison of the Company's core operating results and trends for the periods presented. Non-GAAP financial measures are not prepared in accordance with GAAP; therefore, the information is not necessarily comparable to other companies and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

Contact Information:Laurie W. Little 949-461-6002 laurie.little@valeant.com

Financial Tables follow.

Valeant Pharmaceuticals International, Inc.





Table 1

Condensed Consolidated Statement of Income (Loss)






For the Three Months Ended March 31, 2011 and 2010













Three Months Ended




March 31,



(In thousands, except per share data)

2011


2010


% Change







Product sales

$ 500,421


$ 212,033


NM

Alliance and royalty

58,414


4,349


NM

Service and other

6,191


3,253


NM

Total revenues

565,026


219,635


NM







Cost of goods sold

169,287


58,955


NM

Cost of services

3,210


3,307


NM

Cost of alliances

30,735


-


NM

Selling, general and administrative ("SG&A")

139,506


43,513


NM

Research and development

13,670


12,577


NM

Acquired in-process research and development

2,000


51,003


NM

Legal settlements

400


-


NM

Restructuring and acquisition-related costs

19,046


613


NM

Amortization of intangible assets

112,043


33,300


NM


489,897


203,268



Operating income

75,129


16,367









Interest expense, net

(68,334)


(9,639)



Loss on extinguishment of debt

(8,262)


-



Gain (loss) on investments, net

1,769


(155)



Other income (expense), net including translation and exchange

2,807


(623)









Income before (recovery of) provision for income taxes

3,109


5,950









(Recovery of) provision for income taxes

(3,373)


9,100









Net income (loss)

$ 6,482


$ (3,150)









Earnings per share:












Basic:






Net income (loss)

$ 0.02


$ (0.02)



Shares used in per share computation

303,749


158,387









Diluted:






Net income (loss)

$ 0.02


$ (0.02)



Shares used in per share computation

332,900


158,387



Valeant Pharmaceuticals International, Inc.




Table 2


Reconciliation of GAAP EPS to Adjusted Non-GAAP (Cash) EPS



For the Three Months Ended March 31, 2011 and 2010




















Three Months Ended




March 31,


(In thousands, except per share data)


2011


2010

(a)







Net income (loss)


$ 6,482


$ (3,150)








Non-GAAP adjustments (b)(c):






Inventory step-up (d)


29,909


-


Alliance product assets & pp&e step-up (e)


19,065


-


Stock-based compensation step-up (f)


23,337


-


Restructuring and acquisition-related costs (g)


19,046


613


Acquired in-process research and development


2,000


51,003


Legal settlements


400


-


Amortization and other non-cash charges


114,527


36,128




208,284


87,744


Amortization of deferred financing costs, debt discounts and ASC 470-20 (FSP APB 14-1) interest


3,596


4,113


Loss on extinguishment of debt


8,262


-


(Gain) loss on investments, net


(1,769)


155


Tax


(19,773)


4,300


Total adjustments


198,600


96,312








Adjusted income


$ 205,082


$ 93,162








GAAP earnings per share - diluted


$ 0.02


$ (0.02)








Adjusted Non-GAAP (Cash) earnings per share - diluted


$ 0.62


$ 0.59


Non-GAAP benefit from the out-license of Cloderm (e)


$ 0.06




Adjusted Non-GAAP (Cash) earnings per share - diluted (excluding the Non-GAAP benefit from the out-license of Cloderm) (e)


$ 0.56
















Shares used in diluted per share calculation - GAAP earnings per share


332,900


158,387








Shares used in diluted per share calculation - Adjusted Non-GAAP (Cash) earnings per share


332,900


159,205














(a) Prior year non-GAAP adjustments have been modified to conform to the 2011 disclosure.






(b) To supplement the financial measures prepared in accordance with generally accepted accounting principles (GAAP), the company uses non-GAAP financial measures that exclude certain items, such as amortization of inventory step-up, amortization of alliance product assets & pp&e step up, stock-based compensation step-up, restructuring and acquisition-related costs, acquired in-process research and development ("IPR&D"), legal settlements outside the ordinary course of business, the impact of currency fluctuations, acquisitions, amortization and other non-cash charges, amortization of deferred financing costs, debt discounts and ASC 470-20 (FSP APB 14-1) interest, loss on extinguishment of debt, (gain) loss on investments, net, and adjusts tax expense to cash taxes. Management uses non-GAAP financial measures internally for strategic decision making, forecasting future results and evaluating current performance. By disclosing non-GAAP financial measures, management intends to provide investors with a meaningful, consistent comparison of the company's core operating results and trends for the periods presented. Non-GAAP financial measures are not prepared in accordance with GAAP; therefore, the information is not necessarily comparable to other companies and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.


(c) This table includes Adjusted Non-GAAP (Cash) Earnings Per Share, which is a non-GAAP financial measure that represents earnings per share, excluding amortization of inventory step-up, amortization of alliance product assets & pp&e step up, stock-based compensation step-up, restructuring and acquisition-related costs, acquired in-process research and development ("IPR&D"), legal settlements outside the ordinary course of business, amortization and other non-cash charges, amortization of deferred financing costs, debt discounts and ASC 470-20 (FSP APB 14-1) interest, loss on extinguishment of debt, (gain) loss on investments, net, and adjusts tax expense to cash taxes.


(d) ASC 805, accounting for business combinations requires an inventory fair value step-up. The impact of the amortization of this step-up is included in cost of goods sold. For the three months ended March 31, 2011 the total impact is $29.9 million. A total of $26.4 million for the merger with Valeant Pharmaceutical International, and $3.5 million pertaining to the acquisition of Pharma Swiss SA on March 10, 2011.


(e) Alliance product assets & pp&e step-up represents the step up to fair market value from Legacy Valeant's original cost resulting from the merger of Legacy Valeant into Legacy Biovail. The impact of the amortization of this step-up is included in cost of alliance and royalty & SG&A. For the three months ended March 31, 2011 the total impact is $19.1 million.


(f) Total stock-based compensation for the three months ended March 31, 2011 was $ 29.9 million, of which $23.3 million reflects the amortization of the fair value step-up increment resulting from the merger.


(g) Restructuring and acquisition-related costs for the three months ended March 31, 2011 represent costs related to the merger of Legacy Valeant into Legacy Biovail and include $4.9 million related to employee severance, $4.1 million related to facility closure costs, $3.3 million related to increases in Deferred Stock Unit values related to directors retired as a result of the merger with Valeant Pharmaceuticals International, $3.3 million related to contract cancellation fees, consulting, legal and other costs, $3.1 million related to acquisition related costs, and $0.3 million related to R&D wind down costs.


Valeant Pharmaceuticals International, Inc.




Table 3

Statement of Revenue - by Segment





For the Three Months Ended March 31, 2011 and 2010





(In thousands)















Three Months Ended



March 31,

Revenue (a)(b)


2011


2010


%
Change (c)


2011
currency
impact


2011
excluding
currency
impact


%
Change (c)

U.S. Neurology & Other


$ 209,599


$ 148,304


41%


$ -


$ 209,599


41%

U.S. Dermatology


152,706


38,974


292%


(15)


152,691


292%

Total U.S.


362,305


187,278


93%


(15)


362,290


93%

Canada/Australia


70,245


24,512


187%


(3,856)


66,389


171%

Specialty Pharmaceuticals


432,550


211,790


104%


(3,871)


428,679


102%

Branded generics - Europe


76,093


7,845


870%


162


76,255


872%

Branded generics - Latin America


56,383


-


NM


(3,260)


53,123


NM

Branded Generics


132,476


7,845


NM


(3,098)


129,378


NM

Total revenue


$ 565,026


$ 219,635


157%


$ (6,969)


$ 558,057


154%



























(a) Note: Currency effect for constant currency sales is determined by comparing 2011 reported amounts adjusted to exclude currency impact, calculated using 2010 monthly average exchange rates, to the actual 2010 reported amounts. Constant currency sales is not a GAAP-defined measure of revenue growth. Constant currency sales as defined and presented by us may not be comparable to similar measures reported by other companies.

(b) See footnote (b) to Table 2.

(c) The % change reflects revenue for the combined company for the three months ended March 31, 2011 as compared to Legacy Biovail alone for the three months ended March 31, 2010.


Valeant Pharmaceuticals International, Inc.

Table 4


Reconciliation of GAAP Statement of Cost of Goods Sold to Non-GAAP Statement Cost of Goods Sold - by Segment


For the Three Months Ended March 31, 2011


(In thousands)




Three Months Ended

4.1

Cost of goods sold (a)


March 31,




2011
as reported
GAAP


%
of product sales


2011
fair value
step-up
adjustment to
inventory and
amortization
(b)


2011
excluding fair
value step-up
adjustment
to inventory
and
amortization
non-GAAP


%
of product
sales


U.S. Neurology & Other


$ 46,384


23%


$ 11,402


$ 34,982


17%


U.S. Dermatology


34,703


36%


7,696


27,007


28%


Canada/Australia


21,233


30%


2,767


18,466


26%


Branded Generics - Europe


40,004


53%


5,304


34,700


46%


Branded Generics - Latin America


26,528


47%


4,694


21,834


39%














Corporate


435




-


435


















$ 169,287


34%


$ 31,863


$ 137,424


27%














(a) See footnote (b) to Table 2.


(b) U.S. Neurology and Other and U.S. Dermatology include $9.4 million and $7.7 million of fair value step-up adjustment to inventory, respectively and U.S. Neurology and Other includes $2.0 million of amortization.


Valeant Pharmaceuticals International, Inc.

Table 5


Consolidated Balance Sheet and Other Data



(In thousands)







As of


As of




March 31,


December 31,


5.1

Cash

2011


2010









Cash and cash equivalents

$ 401,752


$ 394,269



Marketable securities

84,252


8,166



Total cash and marketable securities

$ 486,004


$ 402,435















Debt












Convertible notes

$ 373,135


$ 417,555



Senior notes

4,326,012


2,185,822



Term loan A facility

-


975,000



Other

17,224


16,900




4,716,371


3,595,277



Less: Current portion

(17,224)


(116,900)




$ 4,699,147


$ 3,478,377


























5.2

Summary of Cash Flow Statement

Three Months Ended




March 31,




2011


2010



Cash flow provided by (used in):












Net cash provided by operating activities (GAAP)

$ 86,330


$ 44,753



Tax benefits from stock options exercised (a)

24,050


-



Restructuring and acquisition-related costs

19,046


613



Payment of accrued legal settlements

16,000


5,950



Effect of ASC 470-20 (FSP APB 14-1)

2,289


-



Working capital change related to Zovirax transaction (b)

30,771


-



Changes in working capital related to restructuring and acquisition-related costs

25,145


-



Adjusted cash flow from operations (Non-GAAP) (c)

$ 203,631


$ 51,316





(a) Includes stock option tax benefit which will reduce taxes in future periods.


(b) Includes one time impact to accounts receivable, inventory and accounts payable associated with Zovirax transaction and launch of 30g ointment.


(c) See footnote (b) to Table 2.

Valeant Pharmaceuticals International









Pro Forma Organic Growth - by Segment









For the Three Months Ended March 31, 2011









(In thousands)





















Three Months Ended



March 31,



Mar YTD
2011


Pro forma
Mar YTD
2010 (c)


% Change


Mar YTD 2011 currency impact


Mar YTD excluding currency impact


%
Change


Mar YTD
acquisition
impact at
2010 rates


Mar YTD
excluding
currency &
acquisition
impact


Mar YTD
growth at
constant
currency,
net of
acquisitions

Product Sales (a)(b)



















U.S. Dermatology


$ 95,919


$ 73,418


31%


$ (25)


$ 95,894


31%


$ (6,531)


$ 89,363


22%

U.S. Neurology & Other


203,544


189,713


7%


-


203,544


7%


(20,625)


182,919


-4%

Total U.S.


299,463


263,131


14%


(25)


299,438


14%


(27,156)


272,282


3%

Canada/Australia


69,050


58,778


17%


(4,415)


64,635


10%


(3,843)


60,792


3%

Specialty pharmaceuticals


368,513


321,909


14%


(4,440)


364,073


13%


(30,999)


333,074


3%

Branded generics - Latin America


56,383


42,058


34%


(3,260)


53,123


26%


(6,471)


46,652


11%

Branded generics - Europe


75,525


49,551


52%


(98)


75,427


52%


(17,042)


58,385


18%

Branded Generics


131,908


91,609


44%


(3,358)


128,550


40%


(23,513)


105,037


15%

Total product sales


500,421


413,518


21%


(7,798)


492,623


19%


(54,512)


438,111


6%

Royalties


20,740


17,041


22%


-


20,740


22%


-


20,740


22%

Total organic revenue


$ 521,161


$ 430,559


21%


$ (7,798)


$ 513,363


19%


$ (54,512)


$ 458,851


7%




















Organic Growth - excluding Diastat & Efudex



















Diastat adjustment


$ (7,914)


$ (15,864)


-50%


$ -


$ (7,914)


-50%


$ -


$ (7,914)


-50%

U.S. Neurology & Other


195,630


173,849


13%


-


195,630


13%


(20,625)


175,005


1%




















Efudex adjustment


(1,630)


(10,307)


-84%


-


(1,630)


-84%


-


(1,630)


-84%

U.S. Dermatology


94,289


63,111


49%


(25)


94,264


49%


(6,531)


87,733


39%

Total product sales


$ 490,877


$ 387,347


27%


$ (7,798)


$ 483,079


25%


$ (54,512)


$ 428,567


11%

Total organic revenue


$ 511,617


$ 404,388


27%


$ (7,798)


$ 503,819


25%


$ (54,512)


$ 449,307


11%




















(a) See footnote (a) to Table 3.

(b) See footnote (b) to Table 2.

(c) Combined Legacy Biovail and Legacy Valeant product sales and royalty.

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