Valeant Takes First Steps To De-Leverage Its Balance Sheet, Challenges Remain

“Valeant Pharmaceuticals Intl Inc VRX has taken its first significant steps toward de-levering its balance sheet, announcing the divestiture of Dendreon and several dermatology brands for combined cash consideration of ~2.1 billion,” Canaccord Genuity’s Neil Marouka said in a note.

Marouka maintains a Hold rating on the company, while raising the price target from $17 to $19.

De-Leveraging The Balance Sheet

The analyst believes these moves by Valeant Pharma are positive, although they highlight potential challenges within the process for the company, going forward.

“The ability to achieve higher valuations probably will require giving up higher-growth products; also, potential buyers may not be able to achieve the same synergies identified by Valeant when the assets were acquired,” Marouka mentioned.

Following the divestitures, the analyst estimated that the company would have total debt worth $28.3 billion remaining.

Discount Warranted

Although the announced assets sales are the biggest to date, Marouka noted that the valuations achieve were only slightly accretive to Valeant Pharma’s leverage ratio.

“Given Valeant’s elevated leverage, lower growth, and higher risk profile, we believe that a discount to the specialty pharma peer group is warranted,” the analyst went on to say.

In the meantime, positive data from Valeant Pharma’s second Phase III trials of IDP-118 indicate that there still are avenues of growth within the company’s pipeline.