Valeant Pharmaceuticals Intl Inc (VRX) Stock Won’t Keep This Rally Up

There’s been a slight glimmer of hope for Valeant Pharmaceuticals Intl Inc (NYSE:VRX) over the past few weeks. VRX stock has bounced by more than 20% after dropping to a nearly decade-long low last month.

Valeant Pharmaceuticals International, Inc. (VRX)

The catalysts: Debt repayment appears on schedule, including an early payment of $220 million last week. A new psoriasis treatment has been priced at $3,500 a month. Valeant reportedly is even considering a name change as it tries to move on from its recent struggles.

Surely some investors are expecting that the Valeant earnings report on Tuesday morning will bring more good news.

I’m not quite that optimistic. The “news” of the past week has limited impact on the long-term case for VRX stock. Sadly, even that limited impact seems to be all that Valeant Pharmaceuticals has to offer. A penny or two difference in Valeant earnings for a single quarter simply doesn’t move the needle against $30 billion-plus in debt (even after the early payment). A name change won’t deter regulators from pursuing fines and other actions relative to the company’s Philidor debacle.

There simply isn’t going to be any real news in Valeant earnings that can change the story here. That seems to imply that the recent gains in VRX stock will be short-lived.

Not Enough Good News

The “news” surrounding the early payment of debt by Valeant Pharmaceuticals highlights the core problem.

A $220 million early payment sounds helpful. But the figure actually represents less than 1% of Valeant’s total debt. And it’s not as if VRX paid the debt early because Valeant earnings were strong, or asset sales reaped more than expected. Rather, a deal with L’Oreal SA (ADR) (OTCMKTS:LRLCY) closed earlier than expected, allowing Valeant to pay debt a few months ahead of schedule.

The payment doesn’t change the Valeant Pharmaceuticals’ debt problem. Nor does the fact that CEO Joe Papa reiterated $5 billion debt repayment target for next February. Again, there’s $30 billion-plus in debt on the balance sheet. Getting that figure to $27 billion — by selling off profitable assets — doesn’t change the investment case for VRX stock all that much.

The same is true for the supposed operational improvements of late.

The pricing of psoriasis treatment Siliq at $3,500 a month sounds high, but Valeant argued it’s actually the lowest-priced injectable biologic. But pricing doesn’t really matter at this point. As our Chris Fraley pointed out in February, Valeant paid AstraZeneca plc (ADR) (NYSE:AZN) just $100 million for the drug and already has sold the European distribution rights.

Similarly, the clearance of Vitesse for the Bausch + Lomb unit might be moderately good news, just not enough. That supposed ‘trophy asset’ remains in fourth place in the key contact lens market, behind Cooper Companies Inc (NYSE:COO), Novartis AG’s (ADR) (NYSE:NVS) Alcon unit, and of course, Johnson & Johnson (NYSE:JNJ). One product doesn’t change that problem, either.

What’s Left for VRX Stock?

As far as Valeant earnings go, the question is: what’s left to drive Valeant higher?

Even considering that the news of late hasn’t been a game-changer for VRX stock, it’s still been positive at least. But what other news can Tuesday’s report really provide?

A modest earnings beat doesn’t accelerate debt repayment, or change solvency worries. Asset sales have stalled out, and it’s unlikely Valeant management will have much to add on that front.

All told, investors expecting much from Valeant earnings seem likely to be disappointed.

VRX stock has improved of late, but it’s important to remember that VRX has made a number of short-term moves on its long descent from $300+ to $10. The stock climbed from $21 to $31 in a matter of weeks in August. VRX then rose about 30% from late January to late February. Each bout of short-term optimism has been followed by yet another multi-year low for VRX stock.

I don’t expect the recent gains to turn out any differently — and I’m highly skeptical Valeant earnings have the potential to be a catalyst for more gains. At the end of the day, VRX stock is a falling knife, and there simply isn’t enough reason to try and catch it. Valeant earnings aren’t going to change that problem.

As of the time of this writing, Vince Martin had no positions in any securities mentioned.

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