Deutsche Bank Comments on Valeant Pharma (VRX) Following Q4 Call
Deutsche Bank analyst Gregg Gilbert commented on Valeant Pharma (NYSE: VRX) after it released Q4 earnings and discussed challenges on its conference call. The analyst noted operational challenges and overhang from its 10-K delay.
"The new 2016 guidance reflects in large part lower growth assumptions for the core US business (including Dermatology and GI) without offsetting cost reductions (which the company will explore). On the positive side, VRX described making progress with payors, and cited greater visibility on managed care, pricing, and Rx trends for its key assets. While the company significantly lowered the bar for 2016, we believe that it will take time for investors to get comfortable with operational performance and the organic execution and de-leveraging story," said Gilbert.
Discussing its delayed filing, the analyst said, "VRX will have 30 days from 3/30 and 60 days from 3/16 to file its 10-K in order to cure default under its credit agreement and bond indentures, respectively. In response to our question on the call, management indicated that it is hopeful that it can file the 10-K sometime in April, but could not commit to specific timing. VRX will launch a process next week with its lenders to seek to extend the 10-K and 1Q16 10-Q filing deadlines and waive cross-default arising from breach of the reporting covenants in its bond indentures; it is unclear to us what the cost of such concessions would be, if successful."
Gilbert added, "RX expects to reduce net leverage to ~5x (previously ~4x) by the end of 2016 (from ~5.8x at end-2015), which assumes a minimum debt pay down of >$1.7bn. Management noted that it views its cash flow projections as potentially conservative, and the company will be looking for ways to improve revenue and reduce spending during the year. VRX will also explore divesting non-core assets to fund additional debt reduction, although it is unclear to us what is non-core and what the external value of those assets could be. Management has stress tested its estimates and is comfortable that the company can remain in compliance with its debt covenants."
Deutsche Bank previously suspended its rating on Valeant.