Valeant Pharmaceuticals International‘s (VRX) fourth quarter 2010 earnings of 46 cents per share missed the Zacks Consensus Estimate by a cent and was 45.2% below the year-ago earnings of 84 cents per share. Revenues for the quarter increased 102.7% year over year to $514.6 million, in line with the Zacks Consensus.
While fourth quarter earnings were within the company’s guidance range of 44 cents to 48 cents per share, revenues were slightly above the guidance of $500 million.
Earnings in 2010 declined 19.3% year over year to $1.97 per share, nevertheless beating the Zacks Consensus Estimate of $1.34. Revenues, which saw an increase of 44.0% to $1.18 billion, beat the Zacks Consensus Estimate of $1.15 billion.
The increase in revenues was primarily due to the September 2010 merger of Valeant Pharma with Biovail Corporation. Results for the fourth quarter of 2009 only reflect legacy Biovail revenues and do not include any revenues from legacy Valeant.
In spite of increased revenues, earnings saw a year-over-year decline in both the fourth quarter and full year due to a higher number of shares outstanding.
Quarterly Highlights
Product sales amounted to $488.7 million during the quarter, compared with $231.6 million in the prior-year quarter. The merger was the prime reason for the favorable growth.
Quarterly research & development (R&D) expenses amounted to $18.3 million, reflecting a year-over-year increase of 29.0%. Selling, general & administrative (SG&A) expenses for the fourth quarter increased 324.2% to $127.6 million. Increase in the number of pipeline and marketed products, following the merger, led to the rise in operating expenses.
During the quarter, Valeant Pharma recorded merger-related costs and restructuring charges of $44.1 million.
Valeant Pharma was successful in achieving cost synergies of $50 million in the reported quarter.
Outlook
Valeant Pharma expects earnings to come in the range of $2.45 – $2.70 per share in 2011, revised from the previous guidance range of $2.25 – $2.50 per share.
The earnings guidance includes the impact of the acquisitions of PharmaSwiss S.A. and the Canadian rights to Zovirax.
Additionally, the company expects to experience organic growth of at least 8% through 2011.
Valeant Pharma estimates that the combined company will generate $270 million in cost synergies in 2011 and $310 million in 2012.
Our View
We note that Valeant Pharma has been pursuing deals and acquisitions to compensate for the loss of revenues resulting from the genericization of neurology product Diastat and hepatitis C drug ribavirin.
In addition to acquiring the Canadian company Biovail Corp. in 2010, Valeant Pharma recently entered into an agreement to acquire all the Canadian rights to cholesterol drug, Cholestagel (colesevelam), from Genzyme Corp. (GENZ) and the US and Canadian rights to GlaxoSmithKline plc’s (GSK) herpes treatment, Zovirax. Acquisition of the US rights to Zovirax was completed in February.
Valeant Pharma is also into an agreement for the acquisition of Switzerland based PharmaSwiss S.A. for €350 million. The company needs to pay up to €30 million to a few of PharmaSwiss’ shareholders upon achievement of certain milestones.
We currently have a Neutral recommendation on Valeant Pharma.
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