New York — Valeant Pharmaceuticals International on Tuesday cut its annual profit forecast to well below estimates after posting a third-quarter loss, highlighting the major challenges the new management will have turning around the drug maker after a tumultuous year.
The net loss amounted to $1.22bn after Valeant took a $1.05bn goodwill impairment charge to write down the value of some US businesses including Salix, which makes top-selling gastrointestinal treatments and has been considered one of the drug maker’s crown jewels. Salix is among assets that Valeant is considering selling.
The stock dropped 11% to $17.07 in New York, before the US markets opened.
The results pointed to declining sales at several of Valeant’s key businesses, with dermatology sales slumping 50% and Salix’s revenue declining 5.4%, dragged down by lower prices and higher rebates. Valeant, once a darling of Wall Street, became the focus of outrage over skyrocketing drug prices in the US last year, triggering a stock slide of more than 90% since its peak in August 2015.
CEO Joe Papa, who joined in May after former executives testified before Congress and federal authorities started investigating the drug maker, is now looking into divesting businesses to reduce some of Valeant’s $31bn in debt.
Excluding the writedown and other items, profit was $1.55 a share last quarter, the company said Tuesday in a statement, missing the $1.76 average of estimates compiled by Bloomberg. Revenue dropped 11% to $2.48bn, short of the $2.52bn average prediction. The shortfall was mainly driven by declining prescription sales.
The drug maker lowered its earnings guidance to $5.30 to $5.50 a share, excluding some items, from $6.60 to $7 previously. Analysts anticipated $6.49, on average.
The company repaid $450m of its debt load in the third quarter, bringing total payments this year to $1.6bn and closer to its $1.7bn goal for 2016.
Papa replaced Michael Pearson, a former McKinsey & Co consultant who jacked up prices and scaled back on research and development. Pearson and former chief financial officer Howard Schiller are the focus of a criminal probe against the company as authorities build a fraud case related to hidden ties to a specialty pharmacy that Valeant secretly controlled, people familiar with the matter have said.
Valeant is also facing investigations from Congress and the US Securities and Exchange Commission over its accounting and drug pricing. In August, a major shareholder, T Rowe Price Group, sued the company, accusing its former top executives of using a secret network of pharmacies and deceptive pricing strategies to artificially inflate revenue and profit, among other things.