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.

According to Valeant CEO Joe Papa, speaking at a BMO health care conference on Wednesday, the company's biggest problem is click-hungry journalists writing negative articles, which he characterized as "noise." 

And there I was, thinking it was the continued decay of the specialty pharmaceutical firm's business in the shadow of a $30 billion debt load, a biblical list of pending lawsuits and investigations, and a near-complete lack of tangible evidence of improvement.

A day after Papa's comments, Morgan Stanley analyst David Risinger -- until Thursday, one of just six analysts tracked by Bloomberg with a "buy" rating on Valeant shares -- downgraded the stock to a "hold" and cut his 12-month price target to $17 from $25. 

Such a downgrade would be worrisome on its own. But Morgan Stanley is advising Valeant in its efforts to sell assets to pay down its debt. A major reason for Risinger's downgrade was Valeant's conspicuous failure to actually sell such assets, which has been the subject of some negative Gadfly articles. Shares fell as much as 7 percent on Thursday to their lowest point since 2009. 

You know, noise.

How Low?
It took them a bit, but analysts have soured on Valeant along with the rest of the market
Source: Bloomberg

In August, Valeant promised to deliver $8 billion in divestitures. In September, Papa said news on asset sales should come by the end of the year.

With 15 days left in 2016, Valeant has generated billions of dollars in asset-sale rumors and $181 million in actual proceeds. Talks about a $10 billion sale of its recently acquired gastrointestinal business Salix to Takeda fell apart in November. Still, Papa reiterated that $8 billion target on Wednesday and said the proceeds will come from selling non-core assets. 

The $8 billion target was unlikely in the first place, and only becomes more so as the months tick on. 

Take out what Valeant has designated as core  -- including Salix, which is now apparently off the block -- and the assets available for sale are mostly aging and declining, exposed to pricing pressure and generic competition. Nitropress, the company's 10th-best-selling product in the latest quarter, began facing generic competition this month. Loss of exclusivity looms over several more products in the relatively near future -- not the stuff of substantial premiums or an easy $8 billion in proceeds.

Non-Core's a Bore
Valeant's "core" assets seem to be mounting a recovery, but the ancillary assets it hopes to sell at a premium continue to decline
Source: Valeant earnings presentation
"Core" includes Salix, Bausch & Lomb, Canada, and Dermatology. Non-core includes everything else.

Potential purchasers will likely want ever-bigger discounts the longer Valeant waits, given that it is walking a thin line with creditors and its leverage ratio. 

Any hope for shedding debt rests solely on Papa's reassurances that the company will get asset sales done. The same goes for the long-promised stabilization of the company's business. Every time Valeant has tried to reset expectations, it's been forced to lower them yet again. Skepticism of the company's targets isn't media noise, it's a logical reaction to data and everything that's happened in the past year and a half.

Stairs of Woe
Valeant has repeatedly revised guidance and burned optimistic analysts as its business has deteriorated
Source: Bloomberg

If Papa wants media scrutiny to abate and shares to perk up, he might try actually meeting the expectations he has set. 

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

  1. At the BMO conference, Papa counted Salix, Bausch & Lomb, dermatology, and the U.S. and Canadian markets as "core." 

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