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International Headquarters
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Chris Kittredge/Jared Levy
Sard Verbinnen & Co.
VALEANT REPORTS FOURTH QUARTER
AND FULL YEAR 2016 FINANCIAL RESULTS
AND PROVIDES 2017 GUIDANCE
LAVAL, Quebec, February 28, 2017 Valeant Pharmaceuticals International, Inc. (NYSE: VRX) (TSX: VRX) ( Valeant or the
Company or We ) today announced fourth quarter and full year 2016 financial results.
financial results that delivered on expectations and demonstrated our commitment to creating the new Valeant, said Joseph C. Papa, Chairman and Chief Executive Officer. Over the past few months, our teams worked to stabilize and strengthen our
core businesses, resolve legacy issues, improve operational processes, launch new products, and improve the balance sheet and capital structure. We paid all 2017 amortizations and reduced debt by $519 million in the fourth quarter. We agreed to
divest a number of assets, including several skincare brands, our Dendreon business and smaller international interests. The U.S. Food and Drug Administration (FDA) approved our new psoriasis treatment, SILIQ , and we resubmitted our glaucoma
treatment, latanoprostene bunod in February 2017.
Bill Humphries recently joined our Dermatology business as Executive Vice
President and we believe he has the talent and experience to grow the business. With our Walgreens fulfillment arrangement, we continue to see improvements in average sales prices (ASP) that are encouraging to us. We have worked to stabilize our
sales force, while also expanding it to include primary care physicians to help us reach patients whose lives we believe can be improved with our healthcare products. We are pleased to report that the remediation at the Bausch + Lomb manufacturing
site in Tampa was recently completed. Now, more than ever, we believe that with the right people, products and processes in place, we are well poised for a turnaround in 2017; we have a lot to look forward to and are excited about the future.
Total Revenues in the fourth quarter of 2016 were $2,403 million as compared to $2,758 million in the fourth quarter of 2015, reflecting a decline of 13%. The
decrease was primarily driven by a reduction in product sales from the existing business (excluding effects from acquisitions, foreign currency and divestitures and discontinuations) of $310 million and the negative impact of foreign currency
exchange of $43 million, most notably from the Egyptian pound, which was significantly devalued in November 2016. Revenues in the quarter were further impacted by a drop in realized pricing by 3%, along with divestitures and discontinuations of $16
million. These declines were partially offset by incremental product sales of $13 million from acquisitions.
Total Revenues for the full year 2016 were
$9,674 million as compared to $10,447 million for 2015, reflecting a decrease of 7%. The decrease was primarily driven by a decline in product sales from our existing business (excluding effects from acquisitions, foreign currency and divestitures
and discontinuations) of $1,277 million, the unfavorable impact of foreign currencies on our existing business of $137 million, the impact of divestitures and discontinuations of $80 million, and a decline in other revenues of $15 million. These
decreases were offset by incremental product sales of $735 million from acquisitions.
The Bausch + Lomb / International Segment
Lomb/International segment reported fourth quarter 2016 revenues of $1,176 million as compared to $1,187 million in the fourth quarter of 2015. Fourth quarter results reflected incremental revenue gains and slight volume increases from the U.S.
Consumer business and Asia Pacific region that were offset by declines in other business units within the segment, as well as by the negative impact of foreign exchange.
Full year 2016 revenues in the Bausch + Lomb/International segment were $4,607 million as compared to $4,603 million for 2015. The segment, which
contributed 48% of total company revenues in 2016, reflected product sales of $239 million from acquisitions in 2015, a net increase in product sales revenue from our existing businesses (excluding effects from acquisitions, foreign currency, and
divestitures and discontinuations), driven by volume of $31 million.
Increased volumes driven by gains in U.S. Consumer and China were partially offset
by declines in Europe resulting from our targeted inventory reductions in Poland and Russia.
During 2016, the segment was also impacted by the unfavorable impact of foreign currencies of $126 million, a
net decrease in product sales revenue from our existing business driven by a decrease in average realized pricing of $98 million and a negative impact from divestitures and discontinuations of $36 million.
The Branded Rx Segment
The Branded Rx segment
delivered fourth quarter 2016 revenues of $829 million as compared to $1,002 million in the fourth quarter of 2015. The shortfall in quarterly revenues as compared to the same period in the prior year was due to declines driven mainly by our Salix
and Dermatology business. Results in the quarter also reflected lower average realized pricing impacted by managed care rebates, and increased generic competition.
Full year 2016 revenues in the Branded Rx segment were $3,148 million as compared to $3,582 million for 2015. The segment, which contributed 33% of
total company revenues in 2016, reflected a decline in product sales revenue from our existing business, driven by a decrease in average realized pricing of $431 million and a decrease in volume of $357 million. These factors were partially offset
by product revenues of $383 million from acquisitions in 2015, primarily the acquisition of Salix Pharmaceuticals, Ltd. (the Salix Acquisition ) and the acquisition of certain assets of Dendreon Corporation.
The decrease in average realized pricing was primarily attributable to higher managed care rebates and lower price appreciation credits particularly in the
Dermatology and Salix businesses, and the fulfillment arrangement with Walgreens. The decrease in volumes was driven by the Dermatology business, most notably by Jublia , Solodyn and Ziana , which have experienced lower volumes since the change in our fulfillment model. Generic competition was also a factor in
volume declines as certain products lost exclusivity, such as Glumetza and Zegerid in our Salix business unit and Ziana in our Dermatology business unit.
During 2016, the segment was also impacted by a decrease
associated with divestitures and discontinuations of $22 million and the unfavorable impact of foreign currencies on our existing Canadian business of $11 million.
The U.S. Diversified Products Segment
Diversified Products segment reported fourth quarter 2016 revenues of $398 million as compared to $568 million in the fourth quarter of 2015. The shortfall in quarterly revenues as compared to the prior year was primarily driven by lower volumes
in Neurology. Results in the quarter also reflected declines in average realized pricing as a result of higher managed care rebates, as well as increased generic competition.
Full year 2016 revenues for the U.S. Diversified Products segment were $1,919 million as compared to $2,262 million for 2015. The segment, which
contributed 19% of total company revenues in 2016, reflected a decline in product sales revenue from our existing business of $422 million, primarily driven by a decrease in volume of $299 million, and a decrease in average realized pricing of $123
These factors were partially offset by incremental product sales revenue in 2016, related to the 2015 acquisition of certain assets of Marathon Pharmaceuticals, LLC (mainly driven by Isuprel and Nitropress product sales) and other acquisitions of $113 million.
The decrease in volume was mainly driven by generic competition to our Neurology products (Xenazine ,
Mestinon , Ammonul and Sodium Edecrin ). The decrease in average realized
pricing was attributable to our Neurology products and is the result of higher managed care rebates, lower price appreciation credits, and higher group purchasing organization chargebacks on
Nitropress and Isuprel . The segment was also affected by a decrease in contribution associated with divestitures and discontinuations
Total GAAP COGS was $665 million for the fourth quarter 2016 as compared to $730 million in the fourth quarter of 2015. Full year 2016
total GAAP COGS was $2,611 million as compared to $2,585 million for 2015.
As a percentage of total revenues, GAAP COGS was 28% in the fourth quarter of
2016, as compared to 26% in the same period in 2015, an increase of 2%. Full year 2016 GAAP COGS as a percentage of total revenues came in at 27% as compared to 25% in 2015, an increase of 2%.
Adjusted COGS (non-GAAP) for the fourth quarter came in at $666 million as compared to $672 million in 2015. Full year 2016 Adjusted COGS (non-GAAP) were
$2,557 million as compared to $2,402 million for 2015, an increase of $155 million, or 6%.
As a percentage of total revenues, Adjusted COGS (non-GAAP)
was 28% in the fourth quarter of 2016, as compared to 24% in the same period in 2015, an increase of 4%. Full year 2016 Adjusted COGS (non-GAAP) as a percentage of total revenues were 26% as compared to 23% in 2015, an increase of 3%.
For both GAAP COGS and Adjusted COGS (non-GAAP), the increase in year-over-year expenses, as a percentage of total revenues, was primarily driven by a
decrease in average realized pricing across all of our segments. The increase was also attributable to an unfavorable change in product mix, as, in 2016, a greater percentage of our revenue was attributable to the Bausch + Lomb/International
segment, which generally has lower gross margins than the balance of the Company s product portfolio.
These increases were partially offset by lower
acquisition accounting related adjustments to inventory expensed in 2015, primarily related to the fair value step-up in inventories acquired in the Salix Acquisition and other acquisitions.
Selling, General and Administrative (SG&A)
Total GAAP SG&A was $665 million for the fourth quarter of 2016 as compared to $743 million in the fourth quarter of 2015. Full year 2016 total GAAP
SG&A was $2,810 million as compared to $2,700 million for 2015.
As a percentage of total revenues, GAAP SG&A was 28% in the fourth quarter of
2016, as compared to 27% in the same period in 2015, an increase of 1%. Full year 2016 GAAP SG&A as a percentage of total revenues were 29% as compared to 26% in 2015, an increase of 3%.
Adjusted SG&A (non-GAAP) expenses in the fourth quarter of 2016 came in at $658 million as compared to $682 million in the fourth quarter of 2015. Full
year 2016 Adjusted SG&A (non-GAAP) was $2,698 million as compared to $2,611 million for 2015.
As a percentage of total revenues, Adjusted SG&A
(non-GAAP) was 27% in the fourth quarter of 2016, as compared to 25% in the same period in 2015, an increase of 2%. Full year 2016 Adjusted SG&A (non-GAAP) as a percentage of total revenues were 28% as compared to 25% in 2015, an increase of 3%.
For both GAAP SG&A and Adjusted SG&A (non-GAAP), the increase in expenses, as a percentage of total revenues, were primarily driven by expenses
related to acquisitions, severance payments to former employees as well as fees related to the recruiting and on boarding of new staff. The increase also reflected professional fees in connection with recent legal and governmental proceedings,
investigations and information requests relating to, among other matters, our distribution, marketing, pricing, disclosure and accounting practices, and increases in legal and professional fees in connection with ongoing corporate and business
These factors were partially offset by a net decrease in advertising and selling expenses, primarily driven by decreases in promotion and
advertising in our Dermatology and Salix businesses and partially offset by an increase to our reserve for sales returns and allowances recorded in the fourth quarter.
Research and Development (R&D)
was $93 million for the fourth quarter of 2016 as compared to $95 million in the fourth quarter of 2015. Full year 2016 total GAAP R&D was $421 million as compared to $334 million for 2015.
As a percentage of total revenues, GAAP R&D was 4% in the fourth quarter of 2016, as compared to 3% in the same period in 2015, an increase of 1%. Full
year 2016 GAAP R&D as a percentage of total revenues were 4% as compared to 3% in 2015, an increase of 1%.
Adjusted R&D (non-GAAP) expenses for
the fourth quarter of 2016 were $93 million as compared to $95 million in the fourth quarter of 2015. Full year 2016 Adjusted R&D (non-GAAP) expenses were $404 million as compared to $333 million for 2015.
As a percentage of total revenues, Adjusted R&D (non-GAAP) was 4% in the fourth quarter of 2016, as
compared to 3% in the same period in 2015, an increase of 1%. Full year 2016 Adjusted R&D (non-GAAP) as a percentage of total revenues were 4% as compared to 3% in 2015, an increase of 1%.
For both GAAP R&D and Adjusted R&D (non-GAAP), the year-over-year increases in expenses, as a percentage of total revenues, was driven by our focus to
maximize the value of our core segments. To bring out additional value in our core Branded Rx segment, we dedicated additional resources to enhance our Dermatology and Gastrointestinal (GI) portfolios. To bring out additional value in our
core Bausch + Lomb/International segment, we dedicated additional resources to enhance our eye health and vision care portfolios.
Operating Income (Loss)
Operating income for the fourth quarter of 2016 was $151 million as compared to $168 million for the fourth quarter of 2015.