Most of the coverage of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stock over the past 18 months has focused on the negatives surrounding VRX stock. That’s unsurprising, because Valeant Pharma has a long list of negatives.
There are concerns about past pricing strategies and future litigation or regulatory penalties. There’s the nearly $30 billion in debt, which raises questions as to whether Valeant stock might head to zero. And that debt has led to endless analysis and speculation about whether Valeant can sell enough assets to satisfy creditors — and if it can do so soon enough.
The focus on Valeant’s negatives — primarily its balance sheet and regulatory risk — seems to miss a key part of the story, however. Even if Valeant somehow can buy more time by refinancing its debt, there’s a key problem here — the assets themselves just aren’t that attractive.
Bausch & Lomb: A Driver for VRX Stock?
One of the larger “will they or won’t they?” questions surrounding Valeant Pharma is whether the company will sell its Bausch & Lomb business. Valeant acquired B&L for $8.7 billion back in 2013, and the business now is considered one of VRX’s “trophy assets.”
The decision regarding a B&L sale usually is framed relative to the company’s debt load. Assuming modest appreciation in the value of the business, a $10 billion sale of Bausch & Lomb could erase fully one-third of VRX debt. Of course, that sale would also remove a significant amount of profit from the Valeant Pharma bottom line — perhaps hurting its ability to refinance the remaining debt.
But it’s worth remembering that while B&L has value, it’s hardly a great business. The company is fourth in contact lens market share — and a distant fourth. Johnson & Johnson (NYSE:JNJ) is the market leader with 40% of the market, according to figures disclosed by Cooper Companies Inc (NYSE:COO). Novartis AG (ADR) (NYSE:NVS) unit Alcon is close, with both Cooper and Alcon owning 23%-24% of the market.
B&L, meanwhile, has just 9% — a figure that appears to have declined under Valeant ownership. For all the drama about whether or not VRX will sell B&L, any investor who wanted exposure to the stable growth in contact lenses would be much better off simply buying COO. And the fact that one of Valeant Pharma’s best assets is in fourth place with single-digit market share shows just weak the overall portfolio is.