SEC Filing Summary
Filing identity: The supplied filing is Valeant Pharmaceuticals International, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2011—not a filing under the name Bausch Health Companies Inc. Valeant was the reporting company following the 2010 Biovail–Valeant merger. Amounts below are U.S. dollars.
Business context and reporting period
Valeant develops, manufactures and markets specialty pharmaceuticals, primarily in neurology, dermatology and branded generics. The quarter includes Valeant’s operations, acquired by Biovail in September 2010, and PharmaSwiss from its March 10, 2011 acquisition date. Consequently, Q1 2011 and Q1 2010 are not directly comparable: Q1 2010 reflects Biovail’s standalone operations, not Valeant’s.
Financial performance and position
| Metric | Q1 2011 | Q1 2010 or comparison |
|---|---|---|
| Revenue | $565.0 million | $219.6 million; up 157% |
| Operating income | $75.1 million | $16.4 million |
| Net income (loss) | $6.5 million | $(3.2) million |
| Diluted earnings (loss) per share | $0.02 | $(0.02) |
| Operating cash flow | $86.3 million | $44.8 million |
| Investing cash flow | $(825.3) million | Primarily acquisition and intangible-asset spending |
| Financing cash flow | $742.8 million | Primarily debt issuance, partly offset by repayments and repurchases |
Reported operating margin was approximately 13.3% and net margin approximately 1.1%; these calculated ratios should be viewed in light of the merger-related comparability limitations. Expenses included $112.0 million of intangible amortization, $17.5 million of restructuring and other costs, and $29.9 million of acquisition-accounting inventory charges in cost of goods sold. Interest expense was $69.1 million, versus $9.8 million a year earlier.
At March 31, cash and cash equivalents were $401.8 million and marketable securities were $84.3 million. Total debt was $4.716 billion, up $1.121 billion from year-end; net financial liabilities were $4.230 billion. Total assets were $11.688 billion and shareholders’ equity was $4.709 billion. The current portion of debt was $17.2 million. Management said it expected cash on hand and cash generated from operations to meet liquidity needs; it also noted future acquisitions could require additional financing or asset sales.
Material changes versus the prior comparable period
- Revenue rose substantially, chiefly because Q1 2011 includes $281.3 million of incremental Valeant revenue. Cloderm out-licensing added $36.0 million of alliance revenue, PharmaSwiss contributed $16.2 million after acquisition, and Zovirax sales increased.
- Segment profit was $154.7 million, up 44% from $107.2 million, but included newly consolidated operations and acquisition-accounting effects. Branded Generics—Latin America reported a $5.9 million segment loss.
- Operating cash flow increased 93%, while investing outflows rose significantly, principally due to PharmaSwiss and Zovirax acquisitions and other intangible-asset purchases.
- Debt increased following $2.140 billion of senior-note issuance, offset in part by repayment of the $975 million Term Loan A Facility and repurchases of convertible notes. The company terminated its credit agreement and undrawn revolving facility in March.
- The company repurchased 7.37 million common shares from ValueAct for $274.8 million and bought back $52.3 million principal amount of convertible notes for $141.5 million, recording an $8.3 million extinguishment loss.
Outlook, management commentary, risks and unusual items
- Management targeted more than $310 million in annual merger synergies by the end of 2012, including $270 million expected in 2011; approximately $75 million was realized in Q1. It estimated integration and rationalization costs of up to $180 million, including approximately $55 million non-cash.
- Management expected a combined cash tax rate below 10% for 2011 and stated it did not intend to pay dividends in the foreseeable future. These are expectations, not guarantees.
- Management expected Zovirax sales to decline in Q2 2011 after a Q1 shipment-related increase associated with a new 30g presentation.
- After quarter-end, the FDA set June 15, 2011 as the goal date for its review of the ezogabine resubmission; the European Commission had authorized Trobalt, with a $40 million milestone and royalties of up to 20% due after first EU sale. These are contingent product-related developments.
- Valeant offered to acquire Cephalon, but Teva announced an agreement to acquire Cephalon on May 2, 2011. Valeant then decided to dispose of its Cephalon shares; by May 6 it had sold some shares and realized a $14 million gain, expected to be recognized in Q2.
- After quarter-end, Valeant announced redemption of its 4.0% convertible notes, which could convert into shares, and agreed to purchase approximately 4.5 million shares from ValueAct for $224.9 million. The company expected the share purchase to substantially offset dilution from conversion.
- Risks include integration and synergy execution, substantial debt and debt-service needs, acquisitions, product approvals and competition, intellectual-property and generic-entry disputes, tax positions, foreign exchange and interest-rate exposure, and other legal and regulatory proceedings. The filing states litigation outcomes and potential losses are often not reasonably estimable.
- The company reported disclosure controls were effective as of March 31, 2011, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Use the correct issuer and filing identity: this is Valeant’s 2011 Q1 10-Q, and reported year-over-year growth is not like-for-like because of the merger.
- Track debt, interest expense, maturities, and the effects of the note redemptions, conversions and subsequent share repurchases.
- Assess whether the stated 2011 and 2012 synergy targets are achieved and how actual integration costs compare with the up-to-$180 million estimate.
- Check subsequent results for acquisition contributions, purchase-accounting charges, Zovirax sales normalization, and PharmaSwiss integration.
- Monitor ezogabine/Trobalt regulatory and commercial progress, contingent milestone and royalty receipts, and relevant litigation or regulatory developments.