Here’s What Valeant’s Earnings Tell Us About the Future of the Drug Maker

Pershing Square's Bill Ackman and Valeant Pharmaceuticals International's Michael Pearson Interview
Photograph by Bloomberg — Getty Images

Valeant Pharmaceuticals (VRX) will report earnings results for the fourth quarter of 2015 on Tuesday—an event that was supposed to happen two weeks ago but which the company postponed amid the return of its CEO Michael Pearson after his months-long battle with pneumonia.

Shareholders are anxious as ever to hear what Valeant has to say—especially after it canceled another informal call it had set up in lieu of the postponed earnings—on a number of pressing issues, particularly the company’s recently announced plans to restate its earnings, as well as its disclosure that it is under investigation by the Securities and Exchange Commission.

But investors shouldn’t get their hopes up for too many new details on these subjects on tomorrow’s conference call at 8 a.m. E.T. That’s because the company is only announcing its financial results for the final quarter of 2015, not the full year; it has delayed releasing its annual report indefinitely while it completes an internal review of its accounting practices relating to Philidor, the controversial pharmacy with which it has since severed ties. That same accounting review is what led Valeant to say it was restating its earnings—but it said the restatement would involve moving revenue booked in the latter part of 2014 to 2015 instead. We likely won’t know the full extent of the restatement, however, until Valeant reveals its total 2015 earnings.

Likewise, Valeant has also said that it was waiting to officially disclose its SEC investigation in its annual report, but as that had been delayed, so had the disclosure. Whether Valeant includes details about the investigation in its quarterly report tomorrow or is willing to answer analysts’ questions about it on the conference call remains to be seen.

But shareholders should expect reassurances about Pearson’s health, as well as updates on his revamped strategy for Valeant, which he has said will rely less on acquiring drugs and raising their prices than it did in the past. Analysts will be paying especially close attention to the company’s outlook for 2016, as it had withdrawn its previous guidance upon Pearson’s return to work, spooking investors.

They will also be curious to see the financial impact of Valeant’s new distribution partnership with Walgreens (WBA), announced in mid-December, through which Valeant intends to sell drugs at a discount and make up for some of the sales volume it lost when it broke away from Philidor. Valeant has previously estimated that those losses amounted to 20% of its prescription revenue last quarter, but investors should pay close attention to that number tomorrow. While the Walgreens sales won’t be evident yet in Valeant’s fourth-quarter earnings, as the 20-year agreement didn’t take effect til this year, Valeant may disclose one-time expenses relating to the deal.

Wall Street is expecting Valeant’s revenue to jump 21% to $2.77 billion for the fourth quarter of 2015, with adjusted earnings-per-share of $2.62.

The last time Pearson spoke publicly about the business was on Dec. 16 at Valeant’s investor day, when he appeared humbled and somewhat defeated, stating, “If the board wants to fire me, they’re welcome to fire me.” He also acknowledged that for employees working at the embattled company, it had become “tough to go home.” Less than 10 days later, Pearson was hospitalized with pneumonia. Valeant’s stock price has fallen about 70% since last summer, when the company’s recent troubles began.

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