Since reporting quarterly earnings that showed significant deterioration in sales for its Salix and Bausch & Lomb unit, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is still a compelling turnaround story. The debt refinancing buys the company some time. ValueAct’s purchase of 3 million shares in the company on Mar. 16 should give shareholders some confidence.

But even with those positive developments, Valeant has work ahead.

Generic Drug Competition for VRX Stock

The FDA’s approval of Apicore’s tetrabenazine tablets will put pressure on Valeant’s Xenazine drug. But Valeant already planned for generic drug competition in its fourth quarter. On its 10K filing, Valeant wrote:

“A number of our products already face generic competition. In the U.S. these products include among others, Ammonul®, Atralin®, Carac®, Edecrin®, Glumetza®, Nitropress®, certain strengths of Retin-A Micro®, Targetin® capsules, Tasmar®, Vanos®, Virazole®, Wellbutrin XL®, Xenazine®, Zegerid®, Ziana® and Zovirax® ointment.”

Apicore’s generic Xenazine is manufactured in India. This may or may not have a negative impact on the amount Americans will willingly pay for this drug.

Growth at Bausch & Lomb

Bausch and Lomb is, as measured by revenue growth, the underperforming unit. In the fourth quarter, revenue was flat. Valeant needs this unit growing by at least 5% annually or higher.

In 2016, Valeant generated $9.67 billion in revenue, down from $10.45 billion in 2015. Valeant is scheduled to seek FDA approval in the first half of this year for a seven-day extended wear for ULTRA monthly planned replacement contact lenses. Ultra for Astigmatism is scheduled for launch this year.

Stellaris Elite, a surgical product, will launch in first half of 2017.

Investors should expect no more than single-digit growth for eye care. Valeant’s extremely tight budget for R&D spending limits what it may do in developing Bausch & Lomb’s businesses.

Dermatology

Brodalumab, an IL-17 receptor monoclonal antibody, may add meaningfully to the company’s revenue in the coming years.

Marketed as Siliq, the drug treats psoriasis. VRX will market and start selling the drug in the second half of this year.

The “Black Box Warning” clearly sets low expectations for investors. The label warns patients with a history of suicidal thoughts. Yet psoriasis is a depressing disease for patients, so the caution is not entirely necessary.

Salix Unit Underperforms

Salix’s sales force is still gearing up to what it may do. The company added 250 sales representatives and managers to grow medical subscriptions for Xifaxan and Relistor. Xifaxan treats patients with IBS-D (irritable bowel syndrome-diarrhea). Valeant believes patients with IBS-D visit a primary care physician first. For that reason, the newly hired sales team will reach out to primary care physicians.

Markets are shrugging over Valeant’s refinancing activity. Its $1.25 billion bond refinancing, due 2022, loosens its credit terms. This will give VRX great flexibility in the spending it needs to do in carrying out its restructuring plan.

Related Stocks

Like Valeant, shares of Endo International Plc (NASDAQ:ENDP) are out of favor on the markets due to its reliance on generic drug sales. Higher competition will erode the business. Endo is shifting its business towards specialty drugs.

Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) continued to trim its costs. Media incorrectly reported the generic drug giant would lay of 6,000. Teva said it would cut between 2,000 and 6,000 staff. Closing unprofitable units will accelerate Teva’s turnaround in its business.

Takeaway on VRX Stock

Buying shares of Valeant is not a suitable move for every value stock investor. FDA approvals and bringing new drugs to market is only a first step in its turnaround. The company still needs these new drugs to sell in meaningful quantities. That rarely happens in the early phases of bringing a drug to market.

For investors who are willing to hold the stock for the long term, the reward is high if management executes the turnaround.

As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.