Valeant's Potential Salix Sale Appears To Be A Positive

The Wall Street Journal reported that Valeant Pharmaceuticals Intl Inc VRX was in "advanced talks" to sell its gastroenterology unit to Takeda Pharmaceutical Co Ltd TKPYY for nearly $10 billion.

A sale of Salix for that valuation appears to be a positive and represents a significant step in reducing Valeant’s debt by one third, Morgan Stanley’s David Risinger said in a report. He maintained an Overweight rating on the company, with a price target of $42.

Potential Sale Represents A Positive

The purchase price of about $10 billion would include $8.5 billion in cash plus future royalty payments to Valeant, according to the WSJ report. Another potential bidder is suggested but remains unnamed. The existence of another bidder would “increase the odds of a deal being consummated at an attractive valuation,” Risinger wrote.

CEO Joe Papa had previously indicated Salix was core to Valeant. However, the company has failed to reaccelerate its leading candidate Xifaxan as expected. Prescription trends have remained sequentially flat in recent months, while Xifaxan continues to lag Allergan plc’s AGN Viberzi, “given the Valeant's lack of a primary care sales force."

“Therefore, it seems prudent to consider selling the underperforming business unit given that it could fetch an attractive price tag and help pay down Valeant's ~$30B debt load,” Risinger added.

Valeant’s shares have been under considerable pressure amid a potential fraud investigation.

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Posted In: Analyst ColorLong IdeasWall Street JournalReiterationAnalyst RatingsMediaTrading IdeasDavid RisingerMorgan Stanley
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