Valeant Sells Non-core Assets to Pare Down Massive Debts

Sells its Dendreon cancer business and three skincare brands for about $2.12 billion

v1Beleaguered Canadian drugmaker Valeant Pharmaceuticals International Inc. (NYSE: VRX) is selling its Dendreon cancer business and three skincare brands for about $2.12 billion as the drugmaker looks to pay down its more than $30 billion in debt and regain investor confidence, as reported by Reuters on January 10th, 2017.

French cosmetics group L’Oreal SA is buying CeraVe, AcneFree, and Ambi from Valeant for about $1.3 billion in cash. Valeant is also selling its Dendreon cancer business to China’s Sanpower Group Co Ltd for $820 million. The asset sales are part of Valeant CEO Joseph Papa’s efforts to sharpen the company’s focus on skin drugs, stomach treatments, eye care, and consumer health, while selling non-core assets to pay down debts.

v2Valeant has been struggling to prop up its plunging share price since 2016, when the company received bad press relating to its drug pricing practices and its ties with specialty pharmacy Philidor to boost sales of its medicines. Laval, Quebec-based Valeant is also the subject of a number of recent investigations by congressional panels and the US Securities and Commission.

Its stock is down around 82% over the past 12 months and well below the all-time highs of above $260 since August 2015. Moreover, some of its drugs losing exclusivity could face potential generic competition, prompting management to lower guidance for FY16. All these factors combined have hammered down Valeant’s stocks to very low levels.

Skincare brands to add $168 million to L’Oréal’s kitty

The CeraVe brand, which Valeant purchased for $95 million in 2008, includes cleansers, moisturizers, baby products, and healing ointments and is one of the fastest-growing active skin care brands in the US. AcneFree provides acne treatments and skin cleansers, while Ambi makes products to treat dark spots and brighten skin. L’Oréal, one of the world’s leading cosmetics suppliers, stated that these three brands could bring in combined revenue of around $168 million a year.

L’Oreal said the three brands would stand alongside the likes of Vichy and La Roche-Posay in its Active Cosmetics division, which is among its strongest in terms of growth and resilience to slowdowns in consumer spending in the past three to four years. v3L’Oreal paid nearly eight times the brand’s combined annual revenue of $168 million as it expands into one of the fastest growing areas of the beauty industry.

For L’Oréal, the deal will expand its US presence and add to its offerings that cross between skin treatments and beauty products. Skin care is now the beauty industry’s largest category, accounting for a quarter of the market, but growth has slowed in recent years.

Valeant looking to sell Salix unit

v4On November 02nd, 2016, Valeant announced that it is in talks with third parties, including Japan’s Takeda Pharmaceutical Co. Ltd, to sell its Salix stomach-drug unit for $10 billion. Valeant acquired Salix in 2015 for $14.5 billion. Salix Pharmaceuticals makes treatments for disorders such as irritable bowel syndrome and diarrhea. However, talks with Takeda have broken down amid last-minute disagreements over price and other matters. Valeant, which has a market value of $5.78 billion, has massive debts of about $30 billion and $12 billion in loans. Hence, management is looking to selling around $8 billion in non-core assets to help pay down debt that it accumulated over the course of a series of large acquisitions. Valeant is also exploring a sale of its Bausch & Lomb eye-surgery equipment business, which could fetch as much as $2.5 billion.

Valeant builds up losses in Q3 FY16

In its most recent quarterly earnings announced on November 08th, 2016, Valeant’s total revenues fell 11% Y-o-Y to $2.48 billion from $2.79 billion in the year-ago same period, due to a decline in product sales in its existing business and negative impact from currency as well as divestitures and discontinuations. Adding to its woes, Valeant’s expenses grew due to costs associated with the voluntary recall of PeroxiClear. Hit by higher costs and lower product sales, Valeant swung to a net loss of $1.22 billion compared to a profit of $49.5 million in the year-ago period, after it was forced to take a $1.05 billion goodwill impairment charge on some of its U.S. businesses. As a result, Valeant slashed its full-year FY16 guidance and now expects total revenue to be in the range of $9.55 billion to $9.65 billion, compared with the previous projection of $9.9 billion to $10.1 billion.

To spruce up confidence in management, Valeant announced the hiring of two key senior executives: Paul Herendeen, Chief Financial Officer, who joined the company in August 2016 and Dr. Louis Yu, Chief Quality Officer, who joined in October 2016. It now remains to be seen if Valeant can successfully divest its Salix unit to enable it to focus on its core capabilities.

Stock Performance

v5Valeant’s stock stood at $15.33, slipping 6.52%, at the close on Wednesday, January 11th, 2017, having vacillated between an intraday high of $16.68 and a low of $15.32 during the session. The stock’s trading volume was at 28,507,093 for the day. The Company’s market cap was at $5.40 billion as of Wednesday’s close.

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