Valeant Is Done Selling Off Units to Pay Down Debt, CEO Says

2017-08-08 16:11:11

By Cynthia Koons

(Bloomberg) — The CEO of Valeant Pharmaceuticals International Inc. said the drugmaker has slimmed down enough for now and will focus on generating cash from its remaining businesses as it pays down a mountain of debt.

“We’ve accomplished what we felt needed to be accomplished, certainly in the near term,” Chief Executive Officer Joe Papa said in an interview. “Our focus is going to be on the execution of the business.”

Since taking over in May 2016, Papa has sold or agreed to sell a cancer product, a skincare unit and a number of other assets to help beat the goal of paying off $5 billion of debt. The sales have staved off the threat of default, and after they’re completed should leave Valeant with about $26 billion to $27 billion in debt, Papa said, none of it due until at least 2020.

Papa said that ideally, the company will use cash from its business operations to make future debt payments. The company’s second-quarter earnings report Tuesday showed signs that the drugmaker may start generating the means to do so. Sales of its biggest drug, Xifaxan, grew 17 percent in the quarter from a year ago, offsetting declining sales elsewhere.

The shares rose 9 percent to $16.76 at 11:23 a.m. in New York. The stock hit a more than five-year low in April, but has since rebounded by more than 80 percent.

There are still challenges ahead. Its dermatology division has fallen short as it moved away from using a network of closely-tied pharmacies to a more traditional distribution system.

Turnaround Effort

“We’ve put in place the right team, we right-sized the operating expense structure for the business, and we’ve invested in improved sales support systems and market access,” Chief Financial Officer Paul Herendeen said on the call. “What we need to do from here forward is demonstrate that we can get derm back to a growth trajectory.”

The bright spot in Valeant’s earnings was Xifaxan, a drug that has struggled amid changes to its sales plan and pushback from health insurers and pharmacy benefit managers over its price. On a call with analysts, Papa called the company’s Salix unit, which sells Xifaxan, a “standout.” He credited the drug’s success to putting more resources behind its sales force.

Valeant’s bonds were some of the biggest gainers in the market on Tuesday morning in New York. The company’s most actively traded debt, $3.25 billion of 6.125 percent bonds due in 2025, jumped 2.4 cents on the dollar to 86.4 cents at 9:47 a.m., according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. That’s the largest increase since November 2016.

Valeant has been working to win back investors with a new management team following a spate of scandals involving its distribution network and controversies around high prices it put on old drugs.

The company maintained its profit projection for the year, despite selling some units including a cancer business that made its second-biggest drug. Earnings before interest, tax, depreciation and amortization, or Ebitda, will be $3.6 billion to $3.75 billion. It cut its sales projection to $8.7 billion to $8.9 billion, from a prior range of $8.9 billion to $9.1 billion.

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