Valeant mulls asset sales to reduce $30-bn debt

19 May 2016

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Canada's Valeant Pharmaceuticals, one of the most aggressive acquirers in the pharmaceutical industry, is considering selling some assets in order to reduce its massive $30 billion debt, Bloomberg yesterday reported.

Valeant is exploring the sale of these assets, including Obagi Medical Products, the dermatology company it acquired in 2013 for $375 million, Provenge, a prostate-cancer vaccine it bought from Dendreon early last year as part of a $495 million deal, and heart treatment drugs, including Nitropress and Isuprel, it acquired from Marathon Pharmaceuticals, which Valeant purchased last year for $350 million, the report said.

Even if Valeant manages to get around $1 billion from the sale of these small assets, it would hardly make any impact on reducing its $30 billion debt pile.

Valeant was earlier criticised for raising prices of Nitropress and Isuprel by 212 per cent and 525 per cent respectively immediately after acquiring these already-established drugs.

Last month Reuters reported that Valeant is in talks with investment banks that include Goldman Sachs Group and Centerview Partners as it reviews strategic options and seeks advice on dealing with its creditors. (See: Valeant Pharmaceuticals hires investment banks to review strategic options) Valeant's then CEO Michael Pearson and William Ackman, CEO of activist hedge fund Pershing Square, who is a member of the board of Valeant, have said that the company was considering selling "noncore assets" to help trim its $30-billion debt pile.

Post this announcement, Pearson stepped down and Valeant hired Joseph Papa, previously of Perrigo Company.

Valeant's stock soared for several years under Pearson's growth-through-acquisition strategy, which focused on buying older, niche drugs and repeatedly hiking prices. But the company's tactics eventually attracted scrutiny.

Valeant, which has a product portfolio of about 490 products, has made over 80 acquisitions since 2008 and spent around $36 billion since 2010 on purchasing companies, most of them privately owned.

Last month it cut its 2016 sales and earnings forecast and delayed filing its annual report causing its stock to plunge by nearly 40 per cent.

The troubled Ontario-based drugmaker is under investigation by six US government agencies over price hike, its accounting practice, and alleged milking the US Medicaid system.

The Canadian Revenue Agency is also scrutinising the company's books, while investors in Canada and the US are suing the company for insider trading and misrepresentation.

The intense scrutiny of Valeant has triggered repeated sell-offs of company shares, which have lost nearly 90 per cent of their value since reaching peak levels last August.

This year alone, Americans are expected to spend more than $328 billion on prescription drugs.  Of this, individuals will pay about $50 billion out-of-pocket.

The federal government will pick up another $110 billion in payments through Medicare, Medicaid, Veterans Affairs, and other programs.

Some analysts have said that Valeant is an Enron in the making, while others have said that the company is like a pack of cards just waiting to collapse.

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