Who Can Stomach Double-Digit Revenue Declines?

Since coming under scrutiny for price-gouging in certain of its drugs in 2015 Valeant vowed to change its image. The former pharma roll-up placed a moratorium on acquisitions and promised to pare its debt load of over $30 billion. Part and parcel of its strategy was that management needed to prove it could launch new drugs to replace those facing a loss of exclusivity (“LOE”).

Valeant’s Q4 revenue of approximately $2.2 billion was off 10% Y/Y. The revenue decline reflect LOE and asset sales used to help pare its debt load. The company reduced its debt to $25 billion from $30 billion in the year-earlier period. Valeant has announced more than $4 billion in asset sales over the past two years. VRX is up over 40% Y/Y as bulls have been assuaged by debt pare downs and Valeant’s prospects of survival.

Going forward bulls may have to get used to double-digit revenue declines and stagnant growth. Management expects Bausch & Lomb and Salix to be its growth engines. Combined, Bausch & Lomb and Salix represent 72% of Valeant’s revenue and about 63% of EBITDA.┬áBoth segments grew revenue by low single-digits – nothing to get too excited about.

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