VALEANT SPELLS OUT PLAN TO GROW
Still grappling with its towering debt, Valeant Pharmaceuticals International Inc. on Tuesday focused on promoting several new consumer health products that the company hopes will reinvigorate its shrunken cash flows.
Management at the Laval, Quebec-based company have been forging ahead with a dramatic restructuring of the company following a product pricing scandal, selling billions in assets and tightening its focus on a few select segments of the business.
The corporate makeover has in turn placed pressure on management to provide new consumer products that will generate fresh revenue streams, giving the company space to reduce its debt obligations.
“As we think about the future the very clear direction we have is going to be to grow this business as a result of launching new products,” Valeant CEO Joseph Papa told analysts at a second quarter earnings call Tuesday. In the second quarter, Valeant pared back its revenue outlook for 2017, while also suggesting the company could beat its target of divesting US$5 billion in assets by February 2018.
The company has indeed stepped up efforts to pay off its debts and plans to sell off its iNova Pharmaceuticals and Obagi Medical Products divisions for a combined US$ 1.12 billion, expected to close in the second half of the year. Valeant also closed its US$ 811 million sale of Dendreon Pharmaceuticals over the second quarter.
Management said Tuesday it had also trimmed back its number of sales representatives to 150, down from around 250.
Papa acknowledged that the company’s turnaround would be gradual, but aimed to reassure analysts that the battered company is beginning to take form.
“It’s not going to happen overnight,” he said.
He said the company’s next step is to make adjustments to its dermatology business, which has been a sticking point with analysts.
“We know that the business is not performing up to expectations, and that’s the next area we have to focus,” Papa said.
Papa also sees potential in its IDP-118 product, a lotion used to treat plaque psoriasis, as well as several other consumer health products within its Salix drug division. The company bought Salix in 2015 for US$11.1 billion.
Analysts expect any recovery by the company will be long and slow. The company’s debt is currently around US$ 28 billion, down from a peak of about US$32 billion, and management has managed to push back all debt maturities to beyond 2020.
Valeant shares rose 10 per cent at one stage on Tuesday and ended the day three per cent higher to $19.74 per share, adding to the company’s improved stock valuation over the past several months. However, the stock is still leagues below its peak in July 2015, when it was trading at $330 per share.
The nosedive came after reports surfaced that the company was under congressional investigation in the U. S. over allegations that it had inflated the prices of some of its medical products. Papa took over as CEO last year, replacing former CEO Mike Pearson, and is tasked with reviving the company from the dead.
Valeant still has a long way to go before its debt levels are under control. Even at today’s still- diminished price, some analysts are not convinced the company’s stock price reflects its leverage ratio of roughly 7x.
“While there are some signs of stability, and the company has bought time by pushing out debt maturities, we don’t see the current valuation as justifiable,” CIBC analyst Prakash Gowd wrote in a note Tuesday.
Valeant’s second quarter revenues fell 7.8 per cent to $2.23 billion, compared with the year prior. Net losses attributed to the company fell to US$38 million, down from US$302 million a year earlier.