The dust is still settling from this week’s announcement that Pershing Square Capital Management LP (billionaire and activist investor Bill Ackman’s investment firm) has eliminated its remaining holding in embattled pharmaceutical firm Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Once the dust does settle, there is a valid argument to be made that VRX stock has been knocked down far enough to be worth a gamble as a value play.

The Valeant Pharmaceuticals story is about as depressing as you are likely to find.

In less than two years, VRX stock has literally plummeted from a high near $260 to a current $10.7.  That’s a loss of some 96% for investors unfortunate enough to have purchased the shares at its all-time highs in July 2015. But if things improve from here on out, Valeant Pharmaceuticals stock could rise five-fold from current levels.

Will Valeant Survive Without Bill?

VRX has certainly faced a laundry list of problems lately. These include allegations about excessive pricing on its drugs, how it defines earnings, late financial filings and excessive debt that was intended to fund an aggressive acquisition program. Bill Ackman had seen enough, as have most investors.

Given the rapid and precipitous stock price decline, it is clear there are concerns over whether Valeant Pharmaceuticals is going to stay in business. Falling sales and a hefty debt load are key concerns right now, as is how Valeant defines EBITDA, or earnings before interest, taxes, depreciation and amortization.

The level of EBTIDA is an important determinant of if VRX remains in compliance with the debt covenants on its debt. If EBITDA falls too low, the company can fall into default under the terms of its debt. Valeant Pharmaceuticals was already technically in default for filing its 2015 10-K late, but received a waiver and so far is in compliance with its covenants (such as leverage and interest coverage ratios).

During its most recent earnings conference call, management said it expects to remain in compliance with its debt covenants. A question came up regarding how the company defines EBITDA and management relayed that it is being careful with how it is calculated given it is divesting certain businesses, which affects reported profitability. Large asset sales include Dendreon Corporation (OTCMKTS:DNDNQ) to Sanpower and skincare brands to L’Oreal SA (ADR) (OTCMKTS:LRLCY).

It’s difficult to say for certain how the year goes, but it is fair to say that there is a rather low likelihood Valeant defaults on its debt. It is fast restructuring, refinancing and plans to pay down $5 billion in debt within 18 months. It has sold off more than $2 billion in assets and plans to be in restructuring mode through 2018. There is also a fair amount of cash being generated by the existing businesses.

Moody’s Informed Opinion on Valeant

Debt rating firm Moody’s recently offered the following debt rating rational, which accurately summarizes the issues VRX stock is facing. It said the company has “very high financial leverage with gross debt/EBITDA above 7.0 times, and significant challenges in restoring organic growth. Valeant faces significant revenue erosion in the year ahead stemming from patent expirations, and other business lines face continuing pricing pressure and weak volume growth. Valeant also faces considerable uncertainty related to government investigations and other legal matters. High financial leverage creates refinancing risk, although Valeant does not face large maturities until 2020.”

Cash Flow Looking Good

Valeant expects to report sales of $9 billion for all of 2017 and EBITDA of at least $3.55 billion. It considers that its best measure of profitability, but the cash flow statement is an even better measure.  It didn’t give any guidance on that, but based off the last few years there has been plenty of cash flow generation.

Last year, Valeant generated about $1.8 billion in free cash flow, or more than $5 per share. This suggests there is ample liquidity to continue to pay down debt of nearly $30 billion as of year-end (back in 2015 the company really levered up by issuing nearly $18 billion in debt).

Appealing Businesses

Looking at Valeant’s operations, it really has some appealing products. Its Bausch & Lomb segment sells eye care drugs and products throughout the world. Its branded drug division sells dermatology, oncology and dentistry products, and it also sells branded and generic drugs in the United States (its third major division).  Bausch & Lomb should grow 4% to 6% this year and branded drugs 8% to 10%.  The last division could show a sales decline of up to 10%.

Valeant Pharmaceuticals has more than two dozen drugs that generate at least $80 million in annual sales. In fact, its drug portfolio is pretty diversified and not concentrated in a few key drugs. For example, AbbVie Inc (NYSE:ABV) is highly dependent on Humira and Gilead Sciences, Inc. (NASDAQ:GILD) is dependent on its Hepatitis C drugs.

VRX’s drug development pipeline also looks decent. In a recent earnings presentation it said it has 135 active R&D programs and should launch 50 new products this year.

Bottom Line on VRX Stock

Valeant ended its earnings conference call remarks with the following thoughts on when it ends the current restructuring campaign: “Looking to 2018 and beyond, our focus will be transforming the company by innovating for the future, leading in our categories, launching more new products, and balancing organic growth with inorganic growth as appropriate.”

To me, that wasn’t a very specific, or encouraging outlook. It demonstrates the company has too many moving parts and is overly focused on surviving the next couple of years. Its last strategy to raise debt and buy rivals with an inflated stock price is gone for good.

Instead, the company will have to return focus to managing its existing business. If it remains in compliance with all of its debt covenants and can keep sales steady, then it should recover to a relatively stable pharmaceutical company.

If it does, a $50 stock price doesn’t seem out of the question. That is only 10 times the current free cash flow production. It is still a far cry from where VRX stock traded just over a year ago, but it is nearly five times from where it trades currently.

Many investors have probably decided to avoid Valeant Pharmaceuticals stock completely.  There is a lot of risk and there are probably too many moving parts to reasonably keep track of. But there is also opportunity in uncertainty, and if management can navigate the next 18 months well, it could help sow the seeds for a significant stock run from current levels.

For more risk-averse investors, more stodgy pharma stocks including Pfizer Inc. (NYSE:PFE) and Merck & Co., Inc. (NYSE:MRK), offer a steadier mix of reasonable valuation, dividend yield and earnings growth.

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