There are signs of life at Valeant Pharmaceuticals International.
The Wall Street Journal reported Tuesday that the embattled drugmaker is set to sell its Salix unit for $10 billion in cash and royalties to Takeda Pharmaceutical.
Ironically, the acquisition of Salix helped dig a hole for Valeant in the first place. Valeant’s purchase of Salix in the winter of 2015 pushed the company’s debt burden north of $30 billion. Subsequent scandals surrounding the company’s use of a specialty pharmacy Valeant controlled impaired the company’s profitability and caused its market value to collapse.
Unloading Salix won’t completely undo that damage, or the legacy of Valeant’s debt-driven spending spree. The company paid more than $11 billion for Salix and assumed more than $2 billion in debt. But $10 billion in cash is a healthy multiple for the company given sales of the gastrointestinal drug Xifaxan, Salix’s main drug, totaled about $800 million in the four quarters through June.
A sale could help Valeant’s balance sheet beyond paying off $12 billion in bank debt. With that cleaned up, the company might be able to get better terms for its $19 billion in outstanding bonds. Little of that debt matures before 2020.
While Tuesday’s news is positive, Valeant still has plenty of work to do to win back the favor of investors.
There will likely be more deals as the company unwinds its serial acquisitions.
Numerous investigations from law enforcement and regulators into the company are continuing. The outcome of those could yet result in significant financial penalties. Numerous shareholders have also filed suit against the company.
Valeant hasn’t set aside a reserve for these future expenses, so investors have no idea what the company expects to pay. And Valeant will have to figure out a way to generate positive cash flow without Xifaxan. Investors will want to hear how Valeant plans to achieve this when it reports third quarter results, currently scheduled for next week.
But for now, even a little bit of daylight is cause for celebration.