Giving credit where credit is due, I do think Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stock looks stronger than it did just a couple of quarters ago. New CEO Joseph Papa has had some success in getting the balance sheet under control.

Significant debt doesn’t come due again until 2020, giving the company time to execute a turnaround. VRX stock has still declined 1.5% so far this year, but the narrative surrounding the company has certainly changed.

But there’s still a key problem with the bull case for Valeant Pharmaceuticals. On the Q2 conference call, Valeant management made a big deal of the fact that 73% of Q2 revenue came from Bausch & Lomb and the Salix business. That’s good news in a sense. Certainly, it’s better for investors to focus on those still-growing businesses rather than the issues surrounding Philidor or the upcoming patent expirations on a number of Valeant drugs.

At the same time, however, a bull case for VRX stock based on those two businesses seems somewhat flimsy. And given that their profit share is actually much lower than their revenue share — given lower margins in B&L — I’m skeptical they are enough to drive overall growth. At the end of the day, Valeant Pharmaceuticals remains a declining business with a ~7x leverage ratio. That combination still seems like more than enough to offset any short-term optimism toward VRX stock.

Bausch & Lomb And Salix Can’t Fix Valeant

Bausch & Lomb is considered the remaining ‘trophy asset’ for Valeant Pharmaceuticals – and that in and of itself shows how deep the company’s problems are.

B&L is a decent business, at best, albeit one in an attractive industry. Bear in mind that Bausch & Lomb is in fourth place in eye care, behind leader Johnson & Johnson (NYSE:JNJ), fast-growing No.2 Cooper Companies Inc (NYSE:COO) and Alcon, a unit of Novartis AG (ADR) (NYSE:NVS).

All three companies have posted stronger growth than B&L so far this year. Bausch & Lomb is seeing some strength overseas, particularly in Asia, but it has been an inconsistent business for years now and both J&J and Cooper, in particular, are increasing spend to take back share in markets like China and Japan.

As for the Salix businesses, Xifaxan is the biggest drug, and it had a very strong Q2. But Valeant said on the Q2 call that inventory build helped somewhat — and the long-term future of that drug remains cloudy. Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) unit Actavis filed a challenge against the drug last year. Even though Actavis basically lost, Xifaxan still could see generic competition as soon as 2019.

These are both decent businesses, but neither is spectacular. And I simply don’t believe either one is worth taking the risk of Valeant’s $27 billion-plus in debt.

The Math Doesn’t Work For Valeant Pharmaceuticals

Neither business really gets Valeant out of the hole, either. Valeant reportedly was in talks with Takeda Pharmaceutical Co Ltd (ADR) (OTCMKTS:TKPYY) in November to sell Salix for about $10 billion. Valeant paid $11 billion for that business.

Bausch & Lomb was purchased for $8.7 billion. Assuming similar valuation metrics to Cooper, which is far too aggressive, since Cooper is a much better business at the moment, it could be worth in the $10-$11 billion range now.

However you add it up, Valeant Pharmaceuticals could maybe get $20 billion, or a bit more, for the two businesses. That still leaves $7 billion in debt, legal liabilities and a pretty barren cupboard. Most of the drugs in Valeant’s portfolio are declining and/or facing near-term patent challenges. The company’s ‘price hike’ strategy has been obliterated by political pressure, which may not reverse. Long-term, the current debt load seems to outweigh the value of Valeant’s businesses. And barring a huge hit with recently released Siliq, at best it takes years of solid performance to offset that problem.

Better Choices Than VRX Stock

At the least, in a market where drug stocks aren’t valued particularly high, there seem to be a lot easier ways to get exposure to the drug industry. Giant Pfizer Inc. (NYSE:PFE) trades at ~12x forward EPS, and Merck & Co., Inc. (NYSE:MRK) about 15x. Obviously, those valuations reflect the challenges in the industry at the moment. But that’s the point: Valeant Pharmaceuticals faces the same challenges (if not more of them), and a ‘normalized’ VRX stock price would reflect that fact.

At the end of the day, an investor is buying a business. Ignoring all the drama surrounding Valeant, and the huge crash in VRX stock, it’s important to remember that the business here simply isn’t that good. Papa has done a nice job, and he should get Valeant to the end of the decade without going bankrupt. But that alone isn’t enough to drive upside in VRX stock.

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