Valeant Pharmaceuticals International
(VRX) posted earnings of 69 cents per share during the second quarter, higher than the Zacks Consensus Estimate of 63 cents and the year-ago quarter’s earnings of 52 cents per share. Increased revenues resulted in the earnings beat.
 
Revenues
 
Second quarter revenues of $255.6 million beat the Zacks Consensus Estimate of $243 million and was 33% above the year-ago figure of $191.7 million. Strong growth in the Specialty Pharmaceuticals and Branded Generics segments helped increase the overall revenue of the company.
 
Specialty Pharmaceuticals sales went up by 31% year over year to $126.9 million during the quarter.  Within the Branded Generics segment, sales in Latin America and Europe increased 43% and 20%, respectively.
 
Expenses
 
Quarterly research & development (R&D) expenses of Valeant Pharma amounted to $12.0 million, reflecting a year-over-year increase of 31%. Selling, general & administrative (SG&A) expenses for the second quarter increased 19% to $73.5 million.
 
The increase in both R&D and SG&A expenses resulted from advancements in the dermatology pipeline as well as costs associated with the potential approval and launch of Retigabine (for epileptic seizures).
 
Outlook Raised
 
Valeant Pharma expects earnings for fiscal 2010 to range between $2.80 per share and $3.05 per share, on product sales growth of more than 35% year over year. The company earlier expected earnings per share to range from $2.65 to $2.90, on product sales growth of more than 30%.
 
For fiscal 2010, the company expects R&D expenses to amount to $50 million.
 
These figures exclude the impact of the company’s upcoming merger with Biovail Corp. (BVF).
 
Merger Details
 
In June 2010, Valeant Pharma and Biovail Corp. had agreed upon a merger, in which the former will merge with a wholly owned subsidiary of Biovail, with the combined company being called Valeant Pharmaceuticals International Inc. The merger, which is expected to complete by mid-October, is subject to shareholder and regulatory approvals. In July, the Federal Trade Commission issued an early termination of the waiting period under the Hart-Scott-Rodino Act.
 
Our View
 
We currently have a Zacks #2 Rank (Buy) on Valeant Pharma. We expect investors focus to remain on the proposed merger of Valeant Pharma and Biovail Corp. Investors are also looking forward to the potential approval and launch of Retigabine. A positive response from the FDA by August 30 could lead to the product launch in the first quarter of 2011. Moreover, the company is scheduled to launch a significant number of new products in the second half of 2010, which should help boost the top line.
 
Longer term, we remain Neutral on Valeant Pharma. We believe the company needs to enter into suitable deals in order to make up for the loss of revenues resulting from the genericization of Diastat and Ribavirin.

 
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