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.

After months of promises and rumors of asset sales that went unrealized, Valeant Pharmaceuticals Inc. finally answered doubters and creditors on Tuesday, announcing it was selling skin-care brands to L'Oreal SA for $1.3 billion and its Dendreon division to Sanpower Group Co. for $818.9 million.

Finally pulling the trigger on sales reassured investors about Valeant's near-term financial safety, and its stock jumped as much as 14 percent Tuesday morning, though the gain slumped to 6 percent by the early afternoon.

But the $2.1 billion Valeant will raise puts only a small dent in its $30 billion-plus debt load, and Tuesday's share-price gain only partially recovers a more than 80 percent drop over the past year. These deals just don't fundamentally alter the grim calculus of Valeant's mountainous debt and declining core business. 

Margin for Error
Valeant shares got as much as a 14 percent pop on the news the company finally managed to divest some assets
Source: Bloomberg
Intraday times are displayed in ET.

The Dendreon sale doesn't even meet Valeant's goal of selling assets at an average multiple of 11 times Ebitda; Mizuho analyst Irina Koffler estimated the sale price at just 4.6 times Ebitda.

But it is something of a miracle that Valeant was able to get rid of Dendreon at a premium to the $495 million it paid in 2015. Dendreon's sole product is Provenge, a prostate-cancer vaccine that is outdated and expensive to produce and bankrupted the company that discovered it. Valeant was also able to get a decent value for its skin-care lines from L'Oreal. 

The deals will give Valeant breathing room. It's now less likely to default, and it can pay off some of its most pressing obligations.

But a far bigger debt load looms in the future -- more than $3.5 billion comes due in 2018, to start -- and its other businesses keep getting weaker. 

Over the Hill, A Mountain
Valeant's divestitures give it breathing room on its near-term debts, but it has a long, long way to go. Debt maturity by year, by debt type:
Source: Bloomberg

Provenge was Valeant's third-best-selling product in the third quarter and produced about $300 million in sales annually. These asset sales and others to come (Valeant's goal is to raise $8 billion) will drive already anemic revenue expectations for 2017 even lower. Valeant has not provided formal guidance for 2017, but even before these divestitures it expected less revenue than in 2016, due to generic competition for some of its most important products.

Wall Street analysts currently estimate 2016 revenue at $9.6 billion, nearly $4 billion below where the consensus forecast was in the fall of 2015. Valeant repeatedly missed estimates and cut guidance throughout 2016. Forecasts for 2017 are already $250 million below 2016 revenue. With asset sales, Valeant may actually struggle to crack $9 billion in revenue in 2017. 

Downhill
Even before divestitures are set to take another chunk out of Valeant sales, analysts expect 2017 to be worse than an already grim 2016
Source: Bloomberg

Valeant points to its Salix gastrointestinal drugs and to pipeline products such as the psoriasis drug brodalumab as sources of future growth. Investors will have to see it to believe it. Salix sales have been continually disappointing. And even if the FDA approves brodalumab in February, the drug will enter a crowded class, where it is likely to be the only drug to carry a warning of possible suicide risk. Valeant has never launched a drug remotely like it. 

Meanwhile, Valeant is still resorting to price hikes for revenue growth, albeit much less effectively than it once did. Valeant raised 95 of its prices at the start of the year, 76 of which were 9 percent increases, according to Wells Fargo analyst David Maris. Given rising payer pressure for rebates, Valeant likely won't get much benefit from these comparatively anemic increases -- even as it risks further political wrath by going back to the price-hike well. 

Without evidence of real improvement in the business, Valeant's asset sales so far are just steps toward a better-managed decline, rather than an actual turnaround.

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