Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Valeant is provoking unpleasant déjà vu in investors. For the second time in two quarters, Valeant on Tuesday slashed 2016 forecasts far more than analysts expected, sending shares plunging as much as 21 percent. 

It's "Groundhog Day," but without Bill Murray and not fun. 

Valeant's problem, after you strip away all the drama, is that its business isn't impressive and large parts of it are deteriorating. Many of its drugs are old, and R&D investment is minimal. Revenue from dermatology -- Valeant's flagship business -- fell 43 percent from a year ago. Gastric drugmaker Salix, acquired for $17 billion last year, is not meeting expectations.

New Valeant CEO Joe Papa can preach about his stabilization plan, as he did on the company's belated first-quarter earnings call Tuesday. The trouble is, Valeant -- which has abandoned its controversial approach of buying drugs and raising their prices exorbitantly -- has largely mediocre products, huge uncertainty, and a $31 billion debt load. Even after repeated guidance cuts, there may be more room for it to fall.

Cut Down
Valeant shares are plunging (again) after it cut its revenue guidance for 2016 by a billion dollars (again.)
Intraday times are displayed in ET.

The company's estimates for 2016 revenue have dropped by $1 billion since March and are $900 million lower than what analysts expected. Since January, revenue expectations are down $2.6 billion, and EPS expectations have been cut nearly in half, from $13.50 to $6.80.

Changing Estimations
Forecasts for Valeant's 2016 results have shifted significantly since January
Source: Bloomberg

Valeant's biggest unit -- which includes its neurology drugs and generics -- grew sales by just 1 percent in the quarter from a year earlier. Price cuts and generics may add further pressure this year. Valeant's consumer business also saw just 1 percent growth. 

Dermatology's 43 percent revenue decline is even more worrisome. Valeant chalked it up to "speed bumps" in a drug distribution agreement with Walgreens, saying it was selling some drugs at a loss as a result of that program. This suggests Valeant's plan to grow revenue by increasing volume rather than drug prices -- the justification for the Walgreens deal in the first place -- is proving difficult. Papa said he was confident he could fix these issues. He was not particularly specific as to how. 

Drilling down further doesn't provoke optimism. Of the company's top 15 products, only four reported year-over-year growth. Even the positive stories aren't as great as the company might have you believe. Valeant bragged of 140 percent growth for the cancer vaccine Provenge. But that excludes first-quarter sales under the drug's previous owner, which was bankrupted by the drug's commercial struggles. On a pro-forma basis, before stripping out what went to the previous owner, sales were up a bit more than 10 percent. 

valeant-sales

The chart above leaves out drugs acquired from Salix, a deal that was completed in April 2015. The chart might not look much better if they were included. Xifaxan was Salix's best seller; but its sales grew by just $3 million from the fourth quarter of 2015. The company cut its full year expectations for the drug by $390 million. 

Two other former Salix drugs that also made Valeant's top 15 in revenue also saw falling sales. One of them will likely lose patent protection this year. 

Diabetes treatment Glumetza was also acquired in the Salix deal. Valeant jacked up the price of the drug by more than 800 percent last year. That prompted pharmacy benefit manager Express Scripts to limit access to the drug after a generic alternative became available. Glumetza was Valeant's third-best seller in the fourth quarter of 2015, with $81 million in sales. It was not listed among the company's top 30 products in a slide deck  on Tuesday, suggesting quarterly sales may have dropped below $17 million. It's a reminder that Valeant's pricing issues are still dogging it.

This performance would be bad for any company, but it's terrifying for one with $31 billion in debt. Valeant claims it's in a good liquidity position and can abide by its debt covenants this year. But any more erosion of the business will be cause for concern. The company is also under investigation by the SEC and others, which could further drain cash. 

That debt will pressure the company to sell assets and spend cash on repaying it instead of on improving the business. That will further hurt growth. 

Tuesday's guidance cut was another effort to convince investors that the worst must be over. But every floor Valeant has tried to set has fallen out from under it. 

-- Graphics by Rani Molla 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net