Valeant's 2011 Outlook Impresses - Analyst Blog

Valeant Pharmaceuticals International (VRX) recently provided guidance for fiscal 2011. The company also provided guidance for fourth quarter 2010 and fiscal 2010.

2011 Outlook

Valeant expects to earn $2.25 to $2.50 per share on total revenue of $2.1 billion – $2.3 billion in 2011. The Zacks Consensus Estimate currently stands at $2.15 per share, well below the company's expectation. The stock gained 18.7% following the company's announcement of the 2011 guidance.

Product sales are expected to experience more than 8% organic growth in 2011. Moreover, adjusted cash flow from operations is expected to exceed $800 million.

The company plans to complete the Biovail integration by mid-2011 and achieve savings of more than $250 million in 2011. Valeant also plans to enter into at least five ex-US deals (acquisitions or partnerships) during 2011.

Further, the company is looking to launch ezogabine in 2011. We note that the US Food and Drug Administration (FDA) issued a complete response letter (CRL) for the new drug application for ezogabine in early December 2010. The regulatory body said that the CRL was for non-clinical reasons. Valeant, along with partner GlaxoSmithKline plc (GSK), is currently evaluating the letter and plans to file a response to the FDA in early 2011.

Valeant andGlaxo are seeking approval for ezogabine both in the US and the EU for the treatment of adults with partial-onset seizures.

The Marketing Authorization Application for ezogabine was submitted to the European Medicines Evaluation Agency in November 2009. Valeant anticipates European approval in early 2011 followed by the potential launch in the first half of 2011.

2010 Outlook

Valeant expects fourth quarter 2010 earnings in the range of 44 – 48 cents on total revenues of $510 million – $520 million. The Zacks Consensus Estimate currently stands at 45 cents per share. Adjusted cash flow from operations is expected to lie between $170 million and $190 million. Product sales for 2010 are expected to grow at about 19% year over year.

Neutral on Valeant

We currently have a Neutral recommendation on Valeant, which is supported by a Zacks #3 Rank (short-term Hold rating). The company is facing major challenges with its neurology product Diastat and HIV drug ribavirin that are exposed to generic competition. We believe the company needs to enter into suitable deals in order to compensate for the loss of revenues resulting from the genericization of Diastat and ribavirin.