These Two Drugmakers Have Even More Debt Than Valeant

March 27, 2017
By Alex Keown, BioSpace.com Breaking News Staff

NEW YORK – Companies can carry large amounts of debt. Sometimes it can be crushing, especially when combined with controversy and poor revenue streams, such as Valeant Pharmaceuticals and the whopping $30 billion or so it owes. While Valeant owes a lot of money, it doesn’t lead the industry in debt.

Pfizer and AbbVie lead the industry in debt load, Keith Speights of The Motley Fool reported on March 25. Pfizer has a debt of about $42 billion and AbbVie’s debt is not too far behind at $37 billion. Valeant’s $30 billion debts have received a lot of attention, while Pfizer and AbbVie’s debt burdens have largely gone unreported. But there’s a simple reason why the debt burdens of Pfizer and AbbVie have not rankled investors or generated lots of press copy. It all boils down to debt management, Speights said. Speights said it is important to look at debt versus net income.

“If net income is large enough, even a high level of debt shouldn't be a problem for a company,” Speights said.

When it comes to Valeant, not only does it have a large debt, but the company is burning through cash. Pfizer and AbbVie are both generating large profits, which Speights said allows them to operate “without feeling tremendous pressure.”

Speights also pointed to the credit ratings each company holds. Pfizer has a credit rating of A1 from Moody’s, which is an indication there is little risk of default. AbbVie holds a credit rating for Baa2 from Moody’s, which indicates a moderate credit risk, Speights said. Valeant on the other hand holds a credit rating of B3, which indicates a high credit risk.

Not only is Valeant facing problems with its revenue streams, Speights said its debt interest fees made up about 19 percent of its total revenue in 2016. That is a point of worry for the Laval, Quebec-based company. However, Speights noted that Valeant has been looking to sell off some of its assets in order to pay down debt. In January, Valeant sold off its equity interests in Dendreon Pharmaceuticals, Inc. to China’s Sanpower Group Co., Ltd. for about $820 million. Valeant said the proceeds from the sale will be used to “permanently repay term loan debt under its Senior Secured Credit Facility.” In an effort to pay off its massive debt, Valeant has identified about $8 billion worth of assets to sell. In September, the company put a for sale sign on its subsidiary, iNova Pharmaceuticals.

While AbbVie has a strong revenue stream, Speights suggests the company would be wise to pay down its debt before taking on more, particularly after AbbVie acquired StemCentrx and its investigational cancer drug rovalpituzumab tesirine (Rova-T) for $5.8 billion last year. That drug could yield up to $5 billion in annual revenue, analysts have predicted. StemCentrx also has four other drugs in clinical trials for various solid tumors, including triple-negative breast cancer, ovarian cancer, and non-small cell lung cancer. It also has several compounds in preclinical studies, as well as a proprietary technology platform that utilizes stem cells to identify and screen tumor targets.

When it comes to Pfizer, Speights said investors have nothing to worry about.

“The company can easily manage its debt. Its total assets are more than four times larger than its total debt. And Pfizer's cash flow is solid, with its bottom line improving. No worries,” Speight said.