Valeant shares sink as company warns of rocky year ahead

By Rod Nickel and Ankur Banerjee

(Reuters) - Valeant Pharmaceuticals International Inc (VRX.TO) on Tuesday cut its revenue forecast for the year and warned that 2017 could be even more challenging as some products face new competition, sending shares down more than 20 percent.

Valeant's grim expectations come as U.S. Democratic presidential candidate Hillary Clinton has promised, if elected, to pursue price gouging by drug companies and as the U.S. Department of Justice investigates possible price collusion among generic drugmakers.

Nitropress and Isuprel are among Valeant's neurology drugs that lose market exclusivity by next year, and there will also be a likely "material" dropoff in its generics business, said Chief Financial Officer Paul Herendeen, who started work in September.

The result will be lower overall revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) next year, Herendeen said on a conference call.

Revenue and EBITDA in core businesses should grow, he said.

"We will dig our way out of part of the growth hole ... but we will not crawl all the way out of that hole" in 2017 Herendeen said. "It will be a down year."

Rival Endo International Plc (ENDP.O) is also facing increased pricing and competitive pressures in its U.S. generics business and the trends will likely worsen in 2017, newly appointed Chief Executive Paul Campanelli said on Tuesday.

Valeant's U.S.-listed shares (VRX.N) were down 21.5 percent at $15.02 on Tuesday afternoon, after touching a more than six-year low. The company's high-yield bonds fell in heavy trading.

The company, whose biggest investor is Bill Ackman's Pershing Square Capital Management, replaced former chief executive Mike Pearson with Joe Papa in spring as it sought to rebuild trust with investors. Steep drug price increases and its unorthodox use of a specialty pharmacy under previous leadership drew scrutiny of politicians and regulators.

Herendeen emphasized he was not offering formal guidance for 2017, and simply wanted to be transparent.

BAND-AID FIX?

But one analyst expressed scepticism that the company has the right plan beyond cutting costs and investing in research and development.

"I'm hearing more Band-Aid solutions. Am I missing something?" Stifel analyst Annabel Samimy asked executives.

Papa said the company was taking numerous steps, including recruiting new executives.

Analysts have also raised concerns about Valeant repaying its $30 billion debt pile after years of serial acquisitions under Pearson.

Robert Ilowite, a dermatologist in New Jersey and a small Valeant shareholder, said he would likely hold on to his shares.

"I think a lot of the problems stem from the previous CEO," he said in an interview. "It's probably not worth it (now) to sell and take the loss."

Oliver Marti, portfolio manager at Columbus Circle Investors, a Valeant shareholder, said despite the company's "bumps," the new CFO is making the right decisions to turn it around.

"I do think the company is on track."

The Laval, Quebec-based company expects total revenue of $9.55 billion to $9.65 billion in 2016, down from its previous forecast of $9.9 billion-$10.1 billion.

Adjusted earnings are forecast to be $5.30-$5.50 per share, compared with the previous forecast of $6.60-$7.00.

Valeant has received significant inquiries from potential buyers for assets, Papa said, without elaborating.

The company took a charge of $1.05 billion in the latest quarter, reflecting lower fair value of some U.S. businesses, mainly Salix, which makes irritable bowel syndrome drug Xifaxan.

Valeant said last week it was in talks with third parties to sell Salix and other assets.

The company reported smaller-than-expected quarterly adjusted profit due to faltering sales of dermatology products and Xifaxan.

Valeant's net loss was $1.22 billion, or $3.49 per share, in the third quarter, compared with profit of $49.5 million, or 14 cents per share, a year earlier.

Excluding items, Valeant earned $1.55 per share, below analysts' average estimate of $1.73, according to Thomson Reuters I/B/E/S.

Revenue fell 11 percent to $2.48 billion.

(Reporting by Ankur Banerjee in Bengaluru and Rod Nickel in Winnipeg, Manitoba, additional reporting by Ransdell Pierson in New York; editing by Marguerita Choy and Matthew Lewis)