Valeant: Business Shows Some Stability, But ...

We don’t anticipate a change to our fair value estimate or no-moat rating for

Except for Xifaxan, most of Valeant’s product lines performed relatively close to our expectations. Total revenue declined 9% as flat sales in the Bausch & Lomb business couldn’t offset declines in the branded and diversified segments. Xifaxan posted a particularly weak quarter with revenue down 11% due to salesforce turnover, but efforts to improve marketing efforts behind the drug, including a boost to the primary care segment, has led to a recovery in prescription growth over the past few weeks according to management. Although dermatology sales also fell 11% from last year, management noted selling prices and margins in this segment, which was most affected by the Philidor specialty pharmacy disruption, have improved. Although we’re not particularly surprised by less generic erosion on certain products that led to the improved year-end outlook, we don’t think this shift translates into a material improvement in the firm’s long-term standing as these high-margin products continue to shrink. Additionally, we continue to have modest expectations for new products and the pipeline, including the upcoming launch of Siliq due to the black box warnings and REMS restrictions on this product’s label for plaque psoriasis.

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