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.

In case you haven't heard, Valeant has a bit of a debt problem. 

Bloomberg broke the news Tuesday of some specific assets the embattled drugmaker may be looking to sell to help pay down its $30 billion in debt. The list of possible divestitures is not exactly a string of pearls.

Obagi Medical Products, an apparently struggling dermatology business Valeant acquired for about $375 million in 2013, is said to be on the block. So is Provenge, a prostate-cancer vaccine it bought from Dendreon early last year as part of a $495 million deal. Drugs acquired from Marathon Pharmaceuticals last year might also go. Those include two heart treatments, the prices of which Valeant raised massively, drawing widespread criticism.

The company apparently hopes to get as much as $1 billion from these sales. That may be wishful thinking. This list includes toxic assets from an already pretty toxic company. These are said to be preliminary explorations, and sales may not happen. If they don't, it won't be because the company didn't want to sell, but because it couldn't sell at a decent price. Valeant shares were up as much as 8.8 percent on Tuesday, but fell in early trading Wednesday. 

Valley Rally
Valeant shares staged something of a mini-rally before news of possible asset sales broke. They are still down nearly 90 percent from an August 2015 peak.
Source: Bloomberg
Intraday times are displayed in ET.

Obagi was specifically called out as an under-performer by Valeant's former CEO Mike Pearson on a disastrous March earnings call where the company cut full-year revenue estimates by more than $1 billion. The company predicted single-digit growth for Obagi's business over the next three years and said it planned a restructuring. 

As for Provenge, it never lived up to sales expectations, helping drive Dendreon into bankruptcy. Analysts once thought it could be a multi-billion-dollar blockbuster after its approval in 2010, but it only managed $283 million in sales for Dendreon in 2013. The drug did $250 million in sales last year, according to a recent presentation, and is one of the lower-margin products in Valeant's portfolio, according to its 10-K.  

Now On Sale!
Dendreon's shares soared when its cancer vaccine Provenge was approved, but it never delivered for the firm.

Cancer vaccines such as Provenge have fallen out of favor for a reason: They're expensive and tough to produce, and they have not met once-high expectations. Beyond Provenge's commercial struggles, vaccines have suffered multiple major failures in clinical trials, including one just last week by Aduro in pancreatic cancer. Other newer approaches to fighting cancer look far more promising. It was telling that Valeant was the sole bidder for Dendreon's assets in an auction. 

The former Marathon drugs may be the most untouchable. Valeant's 212 percent and 525 percent price increases, respectively, on decades-old heart drugs Nitropress and Isuprel prompted public outrage and congressional investigations. Documents released as part of those probes revealed Valeant bought the drugs purely because it saw an opportunity to aggressively raise their prices. The price hikes were so large that hospitals have tried to limit their use of the drugs. Valeant has been forced by public and political pressure to discount them. And generic competition looms for both. 

That sound you hear? Potential acquirers champing at the bit. 

What's more, these products are all older than when Valeant bought them, and tainted by association. Possible buyers may expect something of a distressed seller discount. Valeant likely didn't invest much in improving any of these assets -- it's notorious for its exceptionally low R&D spending and aggressive cost-cutting. All of that probably translates to lost value and lower multiples on any sales. 

Trying to sell assets is perhaps an encouraging sign of proactivity from new CEO Joe Papa. But even in an optimistic scenario, where the company finds buyers at a decent price, it would still only be able to pay off a small chunk of debt. The cash could ease repayment in the near term and marginally decrease leverage, but would leave the company with plenty more work to do.

If Valeant wrangles $1 billion out of this rather sad garage sale, it will be a surprise with a fairly limited impact. 

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