CEO to talk terms with lenders; Valeant stock leaps

Shareholders of Valeant Pharmaceuticals International Inc. are finally giving the drugmaker a chance, at least until next quarter.

The stock jumped 25 percent Tuesday to close at $28.16, after the company stuck with the full-year guidance it gave in June. Chief executive officer Joe Papa promised to renegotiate terms with lenders, said the company could sell about $8 billion worth of assets, and announced a strategic reorganization.

Those moves will - at least for now - provide Valeant with relief from one of investors' biggest worries: that the company would breach the terms on its more than $30 billion in debt, potentially setting off a chain of events that could be disastrous for shareholders.

"We are setting the company on a new path with new strategic imperatives," Papa said on a call with investors Tuesday.

That doesn't mean that Valeant's volatile story is over. Even with Tuesday's gain the stock is down 89 percent in the last 12 months. It closed at an all-time high of $262.52 just over a year ago. And by keeping the financial guidance he gave in June, Papa has set a goal for the second half of the year that will require the drugmaker, which is based in Canada and has U.S. headquarters in Bridgewater, N.J., to substantially raise its sales and profits.

That's despite lackluster second-quarter results caused by declining sales and rising costs. Second-quarter profit, excluding some items, of $1.40 a share was less than the $1.47 average of analysts' estimates compiled by Bloomberg. Sales declined 11 percent to $2.42 billion, led by a drop in developed markets like the United States as the company faced pressure to cut prices and give larger rebates, Valeant said in a statement Tuesday.

"The team worked together to think through the headwinds and tailwinds" before deciding to reaffirm the guidance, Papa said in a telephone interview Tuesday.

"Going back over the last six years we've always had higher second-half sales versus the first half," Papa said. He said Valeant has also been working on the problems with its dermatology business and on improving its Salix unit's growth.

He also laid out a plan for future divestitures, proceeds from which could be used to pay down debt. The company is examining assets with revenue worth more than $2 billion, Papa said, that could be worth about $8 billion in a sale.

"This excludes our core assets," Papa said. "We don't have a plan to sell them - we are exploring our strategic options with some bankers we've asked to help us."

The company will soon start work to renegotiate the terms it has with lenders on its debt. While it hasn't broken its financial maintenance covenants, Papa said that the company's cushion was not as large as he would like.

"I believe this is one of the most important reasons our stock trades significantly below its intrinsic value," he said.

Papa said he expected Valeant would be fully compliant with its existing 2016 covenants but that increasing the cushion would allow investors to look past the company's debt problems and instead focus on the pipeline of new products and the turnaround in dermatology.

Under the strategic plan, Valeant will be reorganized into three parts: Branded Rx, Bausch & Lomb/International, and U.S. Diversified products. Many of the company's biggest drug categories saw declining sales, including in dermatology and prescription ophthalmology. Papa said the company is working to rebuild relationships with doctors and reduce employee turnover.

Valeant's stock had lost more than 90 percent of its value in the last year after scrutiny of its prices led the drugmaker to cut ties with Philidor Rx, a Hatboro pharmacy that allegedly used aggressive tactics to boost sales, and Congress and U.S. regulators began investigating the company's practices.

Valeant inked a new distribution deal with Walgreens Boots Alliance Inc. earlier last year, but said in June that it was losing money on some prescriptions sold through the pharmacy chain.