Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Check the sky for flying pigs -- Valeant is having a good week!

The embattled pharmaceutical company announced on Tuesday that an internal investigation into its accounting and controversial relationship with specialty pharmacy Philidor found no issues requiring further financial restatements. On Wednesday, major investor (and now board member) Bill Ackman said a new CEO may be in place within weeks. And on Thursday, the company said it had convinced its lenders to ease certain terms on its debt, fending off default. 

It's a welcome respite from a seven-month period of near-constant and escalating bad news, which culminated in Valeant massively cutting its financial forecasts and the coming departure of CEO Mike Pearson.

Shares are up 35 percent since Monday. The closure of the internal investigation is certainly welcome, easing a major investor concern. Reaching an accord with lenders gives Valeant much-needed breathing room on both debt repayment and delayed SEC filings that had raised the threat of default in the first place. A new CEO in the near term could be another sentiment boost. 

It's possible this is the beginning of Valeant's promised era of better communication, governance and management, and that shares could sustain this week's upward climb.

Or not.

As with anything Valeant, caution is warranted. Fundamental concerns about its business model remain. This isn't the first time the company or its investors have given a relatively sunny outlook, only for new issues to emerge out of the blue. And there are troubling nuggets amid the good news; it emerged Monday that Valeant has fired the whole sales force for Addyi, its expensively acquired and struggling female libido drug.  

Stepping Up
After a series of welcome news updates, Valeant shares have started to recover
Source: Bloomberg
Intraday times are displayed in ET.

 

Much of the board that oversaw the company's disastrous recent performance is still around. The most convincing counter to that nice-looking intraday chart up there is a long-term one, in which this week's upward tick is an anthill next to a cliff. Since last year's August high, shares are still down more than 85 percent. 

Widening the Aperture
Valeant's recent uptick looks a bit smaller in the context of last year's share-price highs
Source: Bloomberg

The company's $30 billion debt load continues to dwarf its $12 billion market cap -- a reminder of valid concerns about the company's viability and strategy. 

Valeant spent a lot of borrowed money on acquisitions, some of which depended on huge, and now effectively verboten, price increases. As the company can't make further acquisitions any time soon, given its debt load and new restrictions agreed to with lenders, it's hard to imagine where growth is going to come from. The company has a relatively thin research and development pipeline, because it's explicitly declined to spend much on it. Most of its cash must go toward servicing and paying down debt. Insurers and pharmacy benefit managers angered by its past pricing activities are closely scrutinizing its drugs in a way that may hurt sales. 

Parts of the company are desirable, such as its Bausch & Lomb eye-care business. But many others don't look so great in the new drug-pricing environment.  

Monday's news about Addyi is a good example of concerns about Valeant's mix of assets and its operations. The company spent a large amount of money on an arguably modestly effective drug, and it looks to have thoroughly botched the launch. You'd think a serial acquirer would be more adept at drug launches and integrating new sales forces. 

Caveats abound on even Valeant's good news. While the company's internal investigation is complete, an SEC investigation isn't. Valeant's ad hoc committee said its remaining work is being transferred to the board, so even that saga isn't necessarily over. And the company may still need to work out issues with its auditors. In order to obtain that waiver from its lenders, Valeant will have to pay a higher interest rate on its debt. No one knows what exactly is going to turn up in the company's SEC filings until they're actually filed, which still might not be for some time. 

It's encouraging that Valeant seems to be getting some of its ducks in order, but it'll take a lot more than three consecutive days of good news and non-disaster to truly reassure investors. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net