JPM: Valeant sells off Dendreon, skincare brands for $2.1B
- Valeant Pharmaceuticals, weighed down by a mountain of debt and doubts that won't disappear, on Monday announced the first major asset sales since CEO Joseph Papa took over last May, selling its Dendreon unit to the Chinese Sanpower Group for $820 million and three skincare brands to L'Oréal for $1.3 billion.
- The divestments bring in much-needed funds for Valeant, which had just over $30 billion in long-term debt on its balance sheet as of Sept. 30, 2016.
- Valeant said it would use the proceeds from the sale to repay some of its debt under its senior secured credit facility. This should help give it some breathing room as the company has been subject to quarterly financial maintenance covenants after restructuring some of its debt twice last year.
While $2 billion in cash isn't anything to sneeze at, more asset sales are expected to come from Valeant. In November, the company's stock surged more than 30% on rumors it would sell its Salix stomach-drug portfolio for somewhere in the $10 billion range.
Even so, markets were cheered by news of sales, which are the first concrete signs of Valeant's much-discussed slimdown.
"We are pleased to announce the progress we are making in reshaping our product portfolio and driving value for our shareholders," said Valeant CEO Joseph Papa.
With the proceeds, Valeant could extinguish a good portion of its near-term debt, $4.4 billion of which comes due in 2018, according to the company's most recent quarterly filing. The divestments will also help the company maintain the restructured terms of its obligations.
Valeant had tucked a warning into that securities filing suggesting it was scrapping against one of its maintenance covenants.
"With the slower than forecasted recovery in our dermatology business and underperformance of other select businesses, we have limited headroom in complying with the 2.5x secured leverage ratio maintenance covenant, the filing said. "In recent periods, we have performed below the levels that we had forecast and if that were to continue, we would be in breach of these covenants if we do not take other actions to reduce our secured leverage."
These sales should help with that, at least for now.
Valeant was able to get more from selling Dendreon than what it had originally paid to acquire the company through a so-called "stalking horse bid" in Dendreon's bankruptcy process two years ago. Valeant had paid $415 million net of cash to resurrect the company and its cancer drug Provenge (sipuleucel-T) then.
While Provenge is one of Valeant's top earners, sales have been flat over the past four quarters, totaling roughly $300 million during that period.
"With this sale, we are better aligning our product portfolio with Valeant's new operating strategy by exiting the urological oncology business, which is one of our non-core assets," Papa said, referring to the Sanpower transaction.
The three skincare brands sold to L'oreal are CeraVe, AcneFree and AMBI. Products under those three brands pull in combined annualized revenue of about $168 million, according to the company.
Note: A previous version of this article incorrectly said Valeant had sold Dendreon for less than what it had originally paid in 2015.
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