Valeant Pharmaceuticals International, Inc. (NYSE: VRX) says it’s on track with its $5 billion debt reduction goal after selling assets, which led analysts to refocus their attention on the company’s core business.
The Montreal-based drug company, which is still recovering after a drug pricing and accounting scandal that cost billionaire investor Bill Ackman $4 billion has uncovered a series of actions in the last week.
On Monday, Valeant VRX, announced the sale of skin care company Obagi Medical Products for $190 million in cash, which will fund its repayment to term loan debt. Exactly a week ago, the company had used the proceeds of recent sale of Dendreon Pharmaceuticals LLC to pay off $811 million in term loans.
After this move, the company said it was redeeming close to $500 million of outstanding 6.75% notes that mature in 2018 using cash on hand, a move they made in order to try and reduce debt by $5 billion within 18 months of the first quarter of 2016. The company has no major debt maturities and no mandatory amortization requirements through 2019, giving it a bit of flexibility and leeway to relax.
Analysts at Stifel said their focus has moved back to their fundamentals, and that prescription trends at the core franchises – ophthalmology, consumer, dermatology and gastrointestinal treatments – appear to be mixed, as GI regains some traction, while dermatology struggles recently.
The company’s GI franchise is benefiting from an expansion of its primary care sales force, and prescriptions such as Xifaxan, Apriso, and Relistor have grown 5%, 4%, and 16% respectively. The company’s Bausch + Lomb ophthalmology line is also steady, benefiting from product refresh and demand overseas.
Some other analysts have become more bullish on the stock as of late. The price target was raised last week to $20 from $15 by TD Securities, while maintaining its hold rating.
J.P. Morgan struck a more cautious tone in early July, with a $10 stock price target.
Credit analysts remain bearish, however. “Even if rumors are true, implied outcomes of such transactions don’t seem to support such enthusiastic optimism,” Vicki Bryan at Gimme Credit wrote. It would take a huge transaction in the order of $4 billion to even nudge Valeant’s high leverage lower by just 1 turn, and even then it would not help the EBITDA, which would continue falling.
Valeant’s most active bonds, the 5.50% notes due in March of 2023 were trading at 85.25 cents on the dollar Monday, to yield 8.887%, according to MarketAxess.