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.

When a company is as beaten-down as Valeant Pharmaceuticals International Inc. is, its investors will clutch at any strand of good news.

Valeant's quarterly earnings report on Tuesday was conventionally bad, missing revenue estimates and showing a continual decline in the company's core business. But Valeant is far from conventional; upbeat rhetoric about its debts and an increase in its earnings forecast were enough to provoke a more than 20 percent jump in the share price. 

Easy to Please
Valeant shares jumped after the company boosted full-year earnings guidance
Source: Bloomberg

But let's take a closer look at that adjusted Ebitda increase.

Valeant attributed the boost to $110 million worth of better-than-expected performance from products that have lost, or are expected to lose, market exclusivity. That's pretty speculative ground for a 20 plus percent stock-price surge.

On the earnings call, CEO Joe Papa referred to Valeant's diversified products as a "melting ice cube." The cube is melting a bit slower than the company expected in February, leading to the guidance upgrade, but it could very easily speed up over the next eight months. 

Playing Bridge
Valeant attributed its earnings-forecast boost to better prospects for some of its older drugs
Source: Valeant

The company's Ebitda forecast increase was $50 million for the entire year. That's about a 1 percent boost, notable mostly because it's not yet another guidance cut or withdrawal. As was the case with the company's debt restructuring, this tiny bit of good news is not evidence of sustainable improvement for the business, which continues to be disastrous.

Revenue declined by 11 percent in the quarter from a year ago. Sales of Xifaxan -- the jewel of Valeant's $14 billion purchase of Salix, and a drug once projected to be its first billion-dollar blockbuster -- fell 11 percent from a year ago. Investments in the sales force behind the drug have yet to really pay off and may never do so. Overall, the company's branded drug sales fell by 10 percent, and its older "diversified" products dropped by 36 percent. The only bright spot, and it's a mighty dim one, is that the company's Bausch & Lomb unit was flat. 

Trending Down
Sales continue to decline substantially in two of Valeant's three reported segments
Source: Valeant

Valeant had $1.2 billion in cash on hand at the end of the quarter, substantially more than it had a year ago. But against a backdrop of more than $28 billion in debt and a bevy of lawsuits, it's hard to get excited by that cash. 

Valeant plans to sell its largest growing product, Provenge, to Chinese conglomerate Sanpower Group by mid-year. But the drug is still in the company's full-year guidance. So either the drug will be sold, forcing Valeant to update guidance, or Sanpower will fail to raise funds to buy it. In that case, the stock will sell off anyway, as Valeant won't be able to pay off debt with the proceeds. 

Considering all of this, a $50 million increase in adjusted Ebitda guidance is basically meaningless, and the stock-price jump it inspired is pretty irrational. 

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