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Valeant Pharmaceuticals International Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: August 5, 2009 12:26PM

Valeant Pharmaceuticals International (VRX) filed Quarterly Report for the period ended 2009-06-30. Valeant Pharmaceuticals International is a global publicly traded research-based specialty pharmaceutical company that discovers develops manufactures and markets a broad range of pharmaceutical products. Valeant Pharmaceuticals International has a market cap of $2.25 billion; its shares were traded at around $27.42 with a P/E ratio of 26.7 and P/S ratio of 3.5. Valeant Pharmaceuticals International had an annual average earning growth of 2.9% over the past 5 years.

Highlight of Business Operations:

GSK has the right to terminate the Collaboration Agreement at any time prior to the receipt of the approval by the United States Food and Drug Administration (“FDA”) of a new drug application (“NDA”) for a retigabine product, which right may be irrevocably waived at any time by GSK. The period of time prior to such termination or waiver is referred to as the “Review Period”. In February 2009, the Collaboration Agreement was amended to, among other matters, reduce the maximum amount that we would be required to refund to GSK to $40.0 million through March 31, 2010, with additional reductions in the amount of the required refund over the time the Collaboration Agreement is in effect. During the three and six months ended June 30, 2009, the combined research and development expenses and pre-commercialization expenses incurred under the Collaboration Agreement by us and GSK were $13.5 million and $26.9 million, respectively, as outlined in the table below. We recorded a charge of $1.2 million and a credit of $0.2 million in the three and six months ended June 30, 2009, respectively, against our share of the expenses to equalize our expenses with GSK, pursuant to the terms of the Collaboration Agreement.

Product Sales Revenues: In the Specialty Pharmaceuticals segment, revenues from product sales for the three months ended June 30, 2009 were $96.6 million, compared with $64.4 million for the corresponding period in 2008, representing an increase of $32.2 million (50%). Revenues from product sales for the six months ended June 30, 2009 were $182.9 million, compared with $144.4 million for the corresponding period in 2008, representing an increase of $38.5 million (27%). The increase in product sales in the three months ended June 30, 2009 was primarily driven by growth in existing products. In the three months ended June 30, 2008, as part of our restructuring efforts, we reduced shipments to wholesaler customers aggregating approximately $17.4 million to reduce the amount of inventory in the wholesale channel. Revenues from product sales include sales of products acquired in late 2008 as part of the Coria and DermaTech acquisitions, which contributed an additional $11.5 million and $22.9 million in the three and six months ended June 30, 2009, respectively. In the three months ended June 30, 2009, these increases were partly offset by a $4.7 million reduction from the depreciation of the Canadian Dollar and Australian Dollar relative to the U.S. Dollar. Sales increases in the six months ended June 30 were partly offset by a $7.1 million reduction in sales of Efudex as a result of generic competition, a reduction of $5.8 million due to the sale of business operations in Argentina, Uruguay and Asia and $9.9 million from the depreciation of the Canadian Dollar and Australian Dollar relative to the U.S. Dollar.

In the Branded Generics — Europe segment, revenues for the three months ended June 30, 2009 were $34.0 million compared with $38.5 million for the corresponding period in 2008, a decrease of $4.5 million (12%). Revenues for the six months ended June 30, 2009 were $69.4 million, compared with $76.5 million for the corresponding period in 2008, representing a decrease of $7.1 million (9%). The depreciation of foreign currencies, particularly the Polish Zloty, relative to the U.S. Dollar resulted in decreases of $15.0 million and $29.0 million in product sales revenue in the three and six months ended June 30, 2009, respectively. This reduction was partly offset by growth in existing products, increased revenue from a distribution contract and $2.3 million from the acquisition of Emo-Farm in April 2009.

Revenues for the six months ended June 30, 2009 were $67.4 million, compared with $57.1 million for the corresponding period in 2008, representing an increase of $10.3 million (18%). The increase in product sales is across all products primarily from the improvement of trading relationships with the major wholesalers in Mexico that impacted product sales for the previous two years. This increase was partly offset by decreases of $9.3 million and $19.4 million due to the depreciation of foreign currencies, particularly the Mexican Peso, relative to the U.S. Dollar in the three and six months ended June 30, 2009, respectively.

Alliance Revenue: Alliance revenue for the three months ended June 30, 2009 and 2008 was $19.2 million and $14.8 million, respectively. Alliance revenue for the six months ended June 30, 2009 and 2008 was $37.6 million and $27.6 million, respectively. Alliance revenue in the three and six months ended June 30, 2008 consisted exclusively of ribavirin royalty revenue. Ribavirin royalty revenue was $12.6 million and $25.8 million for the three and six months ended June 30, 2009, respectively.

Gross Profit Margin: Gross profit margin on product sales, net of pharmaceutical product amortization, was 66% and 65% for the three and six months ended June 30, 2009, respectively, compared with 58% and 62% for the corresponding periods in 2008, respectively. Product amortization expense was $14.8 million and $10.4 million for the three months ended June 30, 2009 and 2008, respectively. Product amortization expense was $29.5 million and $21.4 million for the six months ended June 30, 2009 and 2008, respectively. The increase in product amortization expense in the three and six month periods is primarily attributable to products acquired within the Specialty Pharmaceuticals segment in the U.S. in late 2008. The gross profit margin improvement in the Branded Generics — Latin America segment was primarily due to the negative impact of inventory reserve provisions of $5.6 million and $10.4 million in the three and six months ended June 30, 2008, respectively. The gross profit margin improvement in the Branded Generics — Europe segment in the three months ended June 30, 2009 is primarily attributable to the negative impact of inventory reserve provisions of $3.6 million in the three months ended June 30, 2008. The

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VRX is in the portfolios of Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.


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