Valeant, looking to sell neurology business as it faces pricing scrutiny

MONTREAL – Valeant says it may sell its neurology business as it adjusts to political and legal scrutiny in the United States over soaring drug prices.

The Quebec-based company, whose stock plunged more than six per cent Monday despite reporting earnings that beat expectations, said it will look to sell, spin off or privatize its neurology business over the next 12 months as part of a “pragmatic” strategic shift to changing conditions.

“Given the current environment, I think that probably doesn’t make sense for us to hold onto it,” chairman and CEO Michael Pearson said during a conference call.

“Hopefully, we’ll figure out a way to do it in a way that shareholders can continue to participate in an entity that’s maybe not a growth company, but a big dividend company.”

Valeant’s neurology and other portfolio, which is more dependent on price increases than some other aspects of the business, is expected to represent about 10 per cent of total company revenues in 2016 down from 16 per cent this year.

Meanwhile, Valeant plans to spend more on research and development and will pursue fewer acquisitions of companies with “mispriced products.”

Pearson told analysts that he doesn’t see why there should be any restrictions on pricing when lower-priced generic alternatives are available and defended Valeant’s price increases as being appropriate.

But after being “aggressively attacked for past pricing actions,” Pearson said Valeant and others in the pharmaceutical industry will be more circumspect on the issue.

“Given that environment, the pricing that pharmaceutical companies will take in the future will be more modest and that we built that into our forecast for next year,” Pearson said.

Valeant expects to realize no more than 10 per cent price increases for any of its products, he said.

Meanwhile, Valeant (TSX:VRX) said 2015 is shaping up to be more profitable than its previous estimates.

Canada’s largest drug company now is projecting cash earnings for the full year of between US$11.67 and US$11.87 per share, up from the previous range of between US$11.50 and US$11.80 per share, on higher revenues. Adjusted cash flow from operations is expected to exceed US.

35 billion.

Valeant beat expectations in the third quarter, largely due to its U.S. dermatology business. The company’s US$2.74 per share of cash earnings in the third quarter, up 30 per cent from US$2.11 last year.

The cash earnings excluding currency, restructuring and other one-time changes were four cents per share above analyst estimates compiled by Thomson Reuters. Revenue was US$2.786 billion of revenue, above consensus estimates of US$2.779 billion.

Including items that are omitted from cash earnings, Valeant’s net earnings attributable to shareholders totalled US$49.5 million in the third quarter, or 14 cents per share _ down from US$275.4 million or 81 cents per share a year earlier.

Valeant shares have taken a beating from the impact of U.S. investigations into pricing for two heart drugs and its patient assistance program. It disclosed last Wednesday that U.S. Attorney’s offices in Massachusetts and New York had court orders for the company to produce documents.

Pearson said the company will co-operate with the investigations but declined to provide analysts with more details.

Given its lower share price, the company is thinking about buying back its shares while also reducing its debt.

On Monday, the stock was down an additional $14.35 or 6.31 per cent to $213.05 on the Toronto Stock Exchange.