Is the new Valeant just a shiny facade?
- Valeant Pharmaceuticals promises it's on a new path that doesn't include price gouging, specialty pharmacy scandals and excessive debt.
- Even after a dramatic restructuring of Valeant's board of directors, the company has brought on a new slate of executives, including former Novartis exec Christina Ackerman, who will take over as general counsel, and new SVP of Business Strategy and Communications, Scott Hirsch, who joined the company from Citadel Investment Group. And Valeant expects to continue hiring management.
- Valeant on Tuesday said it will pay down the $30 billion it has in debt and has completed $1.92 billion in payments over the last quarter. But management also indicated it is talking to lenders about loosening restrictions on the company's debt load.
Valeant appears to be doing its best to unwind the last six years and transform itself into a typical pharmaceutical company—something it hasn't been since its reverse-merger with Canada's Biovail in 2010.
The Biovail merger not only gave it a more favorable tax rate, but set it on a course of growth through acquisition. While the unique business model was beloved by Wall Street at first, critics often accused the company of racking up too much debt and expanding at an unsustainable right. After a disastrous year, those critics have been widely vindicated.
Now, after months of chaos and scandal, Valeant is hoping to win over trust of stakeholders and create a company that actually develops drugs. It's a tall order.
Investors pushed the stock up 12% in early trading Tuesday to above $25 after Valeant reaffirmed its guidance for the year. Valeant hasn't cracked $25 per share in two months but the small gains are still a far cry from the all-time high of $262 per share, hit last summer.
Since then accounting scandals, pricing pushback, federal investigations and wholesale changes at the top of company have erased 90% of the company's value.
CEO Joseph Papa, who took over from longtime chief Michael Pearson after leaving generics company Perrigo, has promised to pay down debt, invest in a pipeline and sell non-core assets.
"Valeant will be embarking on a new vision and mission. We want to be a trusted healthcare partner and to improve people's lives with our healthcare products," said Papa during the company's long-awaited second quarter earnings call on August 9. "The pipeline is key to the new Valeant."
Papa outlined a new strategy for the company that included five pillars focusing on quality healthcare outcomes, innovation, being customer focused, efficiency and improving the lives of people. Ironically, these were not values the company espoused previously. Valeant was known within the industry for only spending about 6% of revenues on R&D—the industry average among big pharmas is closer to 20%.
The turnaround also includes the potential sale of non-core assets. Papa said Valeant is "evaluating strategic alternatives" for a number of assets that represent greater than $2 billion in revenues and could bring in as much as $8 billion if they can find buyers.
"We've received indication of interest on these assets and have engaged respective banks to assist us in exploring our options. We fully intend to make decisions regarding our asset base in the best long-term interest of our shareholders. We expect to simplify the business and reduce our debt through strategic measures and cash generation over the next 12 to 18 months," said the CEO.
Lastly, Valeant will be reorganizing the structure of the company. While Valeant was previously structured by geography, it will now be put into three business units: Bausch & Lomb + International, branded prescription and a cash generating business that includes neuro, generics, Solta and Obagi.
Analysts weren't necessarily buying into what Valeant is selling. The Q&A portion of the call lasted an extra 40 minutes as analysts looked for clarification on plans. Wells Fargo's David Maris even went as far as to ask, "Are things really changing or is this just new paint on the same old shed?"
Papa's response: " I'm absolutely confident we are making changes at Valeant today." Time will tell.
- Valeant Executive Statement
- Valeant Earnings Statement
- Bloomberg Valeant to Ask Lenders for Looser Terms on Loan Pact, Papa Says
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