Debt-Ridden Valeant Dumps Another Asset in $190 Million Cash Deal
July 17, 2017
By Mark Terry, BioSpace.com Breaking News Staff
Since Joseph Papa took over Valeant Pharmaceuticals in May 2016, he’s been working to cut the deadwood out of the company and trim down its massive debt. Today, the company announced that it was selling its Obagi Medical Products business to Haitong International Zhonghua Finance Acquisition Fund I for $190 million in cash.
Obagi Medical Products is a global specialty pharmaceutical business in the dermatology market. Its products are used to treat premature skin aging, skin damage, hyperpigmentation, acne and sun damage.
The fund is managed by a limited partnership that includes China Regenerative Medicine International and Haitong International Securities Group. Both are based in Hong Kong.
China Regenerative Medicine is focused on research, development and commercialization of healthcare products and medical techniques, operating seven production facilities in mainland China and Hong Kong. It has four strategic business areas: tissue engineering, cell therapy, cosmetics and hospital management.
“The sale of Obagi marks additional progress in our efforts to streamline our operations and reduce debt,” Papa, the company’s chairman and chief executive officer, said in a statement. “As we continue to transform Valeant, we will remain focused on the core business that will drive high value for our shareholders.”
Valeant’s troubles have been going on for several years. Based in Laval, Quebec, Valeant has been dubbed a “serial acquirer.” It bought over 120 other companies over a nine-year period. It was the focus of heated attention during the U.S. presidential election over drug pricing issues. It was being investigated by the U.S. Securities and Exchange Commission (SEC) for insider trading, possible accounting fraud, and a number of other issues.
Sean Williams, writing for The Motley Fool, in March 2017, said, “Valeant, which had been primarily growing its business through price hikes on mature drugs and through debt-financed mergers and acquisitions, ran into a brick wall when it was caught red-handed passing along exorbitant price hikes of 525% and 212% on two cardiovascular drugs.”
At the beginning of this year, the company had around $31 billion in debt, and part of Papa’s strategy was to sell off non-core assets.
Valeant acquired Obagi for about $344 million in 2013. Last week, the company indicated it paid down $811 million of its debt from the sale of Dendreon Pharmaceuticals .
“We are continuing to deliver on our commitments as we transform Valeant,” Papa said in a statement on July 10. “With the proceeds from the sale of Dendron, we have reduced our total debt by an additional $811 million and met all mandatory amortization requirements through 2019.”
The company indicates it expects to pay down $5 billion more debt within 18 months of August 2016, from the proceeds from divestitures and free cash flow.
Valeant are currently trading for $17.52. That’s a recent doubling from a low of $8.50 in April.
Warwick Simons, writing for SeekingAlpha last weekk, noted, “Valeant’s troubles have been well documented, especially in the financial press, as after all, scandals sell. These challenges were genuine, as Valeant’s former business model was clearly unsustainable. But I believe Valeant’s equity is still only in the early stages of a significant recovery because of four reasons.”
Those reasons include, first, that the core business franchises, Bausch & Lomb, Salix Pharmaceuticals and its dermatology franchise are growing. Secondly, he says, “the legacy Valeant business that (rightly) attracted so much controversy is a much smaller part of the business today, and it will absorb most of the Loss of Exclusivities (LOEs) by the end of 2018, paving the way for a return to profit growth for Valeant as a group.”
The third point, Simons writes, “Is how the financial leverage that many have been focused on will magnify the recovery in Valeant’s cash flows to equity holders, as it magnified the downside to date.”
And finally, the company’s current inexpensive valuation will eventually boost the returns for equity investors.