Showering its investors with good news, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is trading close to its yearly highs. Since early November, VRX stock has more than doubled, and for good reason.
The company extended the maturities of its upcoming debt obligations. Asset sales closed, giving the company cash it used to lower its debt. The company’s turnaround schedule is on time as 2018 becomes a pivotal year for the business. While fundamental improvements in the business justify the latest rally in VRX stock, shareholders may expect more.
At the JPMorgan Healthcare Conference, Valeant reiterated that its turnaround plan would continue from 2017 through to 2018. After 2018, it would transform the business. After de-risking the balance sheet, investing in the core units and launching new products, Valeant will likely deliver on all of its upcoming commitments.
Nearly 77% of Valeant’s business comes from Bausch + Lomb, the international segment, and Salix Pharmaceuticals. It consistently grew revenue at B+L in the single digits for each of the first three quarters of 2017. With Salix, organic revenue grew as much as 16% in Q2.
The results are adding meaningfully to the balance sheet. As of Sep. 30, 2017, Valeant generated $1.712 billion in cash flow from its operations.
Growth in international business is required for Valeant’s turnaround, as 60% of its portfolio depends on the U.S. markets, but 40% comes from the international markets.
As drug pricing faces further erosion in general, key products from B+L will matter more. For example, the global consumer unit accounts for 31% of B+L’s business. 27% comes from the international markets. That means product sales growth for Tiazac XC and Jublia is a key component to B+L’s turnaround.
Slowly but steadily, vision care is becoming a bigger market. After taking its focus away, B+L is ready to reverse its underperformance. Soft contact lenses, cleaning solutions and products like Aqualox and Lumify will grow again in 2018.
In China, B+L is the number one spot for vision care, having 20% CAGR. Given Valeant’s renewed goal of growing vision care, investors can expect the company will perform even better in the Chinese markets.
New Product Launches
Vyzulta, which treats glaucoma, has an addressable market of $6 billion worldwide. The market will grow 15% CAGR in the next four years, and Valeant has the potential to grab a large portion of that for two reasons. First, the drug works by having a dual mechanism of action, and second, the drug has a good safety profile.
Valeant has three other significant product developments: Siliq gaining FDA acceptance, NDA for Duobrii, and FDA approval for Lumify. At the Salix division, sales for Xifaxan may pick up again. By committing R&D funds to the product, Salix is studying new indications and reviewing better formulations that will give the drug an edge over the competition. It started clinical trials in Q4 of 2017.
In the underperforming dermatology unit, Valeant’s Ortho Dermatolgics unit is betting on Siliq. Even though 94% of patients that start on the therapy continue using the drug, Valeant must grow prescriptions. It will educate doctors and health practitioners on the product. So for now, Siliq will not add that much to Valeant’s overall results.
Stable Balance Sheet
The over-subscription for Valeant’s refinanced debt is a vote of confidence from investors. That debt sale let the company eliminate any debt due this year (2018) and next year. 2022 and 2023 are the two years where the company faces a big debt repayment. $5.32 billion is due in 2022, and $6.051 billion is due the year after.
Takeaway on VRX Stock
VRX stock’s rally may pull back due to profit taking, but the improving fundamentals should limit the drop.
Disclosure: Author does not own shares in any of the companies mentioned.
