It remains to be seen if John Paulson’s presence on the board of directors of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) will make a positive difference for the beleaguered company. But as far as owners of VRX stock are concerned, it will only help.
VRX shares popped 7% on Monday following the news … a much-needed lift for a stock that, as of the end of last week, was down more than 95% from its late-2015 high.
Still, one can’t help but wonder how much Paulson can do that the company wasn’t already trying to do for itself under relatively new CEO Joseph Papa.
A Tall Order
The name should ring a bell. John Paulson is the chief of hedge fund Paulson & Co., which rose to infamy after making a (very) correct bearish call on the U.S. housing market in 2007.
Not all of his picks have been winners, though. He’s actually down $2 billion on a bet he made on VRX stock last year. He also made similar bets on fellow pharmaceutical giants like Allergan plc Ordinary Shares (NYSE:AGN), Mylan N.V. (NASDAQ:MYL) and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA). Paulson pared back on all those positions last quarter, but is essentially doubling down on Valeant by joining its board.
Unlike most activist investors, Paulson doesn’t appear terribly interesting in meddling much. He said in a statement posted Monday morning:
“The strategic plan to transform Valeant smartly focuses on rebuilding the company’s core franchises in ophthalmology, dermatology and gastroenterology while simultaneously using the proceeds from the sale of non-core assets and operating cash flow to de-lever the company. I am fully supportive of the strategy and leadership team at Valeant.”
That sale of assets Paulson referred to is Papa’s plan to take a bite out of more than $30 billion worth of company debt hedge fund manager and former board member Bill Ackman helped the company rack up. Papa aims to reduce that figure by $5 billion by early 2018, and is roughly halfway there. Last month it sold three of its skincare lines to L’Oreal SA (ADR) (OTCMKTS:LRLCY), and divisions like Dendreon and Paragon are also on their way out.
It may not be enough alone, however, to give the organization the financial flexibility it needs. The first quarter’s interest expense was $471 million, versus operating income of only $211 million.
The only plausible way Valeant Pharmaceuticals can become meaningfully viable again is to grow its top line, as Paulson alluded. Even that, however, would be an incredible and perhaps unreachable feat if the previous quarter’s results are any indication.