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Valeant Streamlines Portfolio with Skincare Brands Sale

Zacks

Beleaguered Valeant Pharmaceuticals International, Inc. VRX announced that it has entered into an agreement to sell its CeraVe, AcneFree and AMBI skincare brands to L'Oréal for $1.3 billion in cash.

Shares of Valeant underperformed the Zacks classified Medical-Drugs in the last 12 months with a massive plunge of 80.8% as compared to a 7.7% decline for the industry.

These product lines generate annual revenues of approximately of $168 million.


The transaction is expected to close in the first quarter of 2017. Valeant intends to use the proceeds from the sale to permanently repay term loan debt under its senior credit facility.

The sale comes close on the heels of another divestiture. Earlier in the week, Valeant entered into a definitive agreement to sell all the outstanding equity interests in Dendreon Pharmaceuticals, Inc. to the China based Sanpower Group Co. Ltd.

We remind investors that Valeant has decided to sell the assets to align its product portfolio better with its operating strategy. The company is divesting its noncore assets.

Once an acquisition giant, Valeant was caught up in various controversies in 2016-price hike of specialty drugs, erroneous financial reporting and termination of contracts with Philidor Rx Services.

With its new CEO, Joseph C. Papa, Valeant started a rebuilding process. However, the dismal third-quarter results and subsequent lowering of the guidance indicates further trouble ahead. The company is facing generic completion for its neurology products while the dermatology segment is also facing weakness. On the other hand, Bausch + Lomb / International segment is experiencing a decline in product sales due to lower realized prices.

The divestiture of non-core assets is likely to help the company streamline its product portfolio and focus better on core areas and pay off debt.

On Nov 8, 2016, Moody’s Investors Service downgraded the company’s credit rating to B3 from B2. A downgrade will increase the company’s cost of borrowing and add to the existing debt burden. With the President-elect Donald Trump’s focus on drug pricing, Valeant will continue to be in the spotlight for pricing of drugs along with companies like Mylan MYL.

Concurrently, Valeant announced positive results from a second confirmatory pivotal phase III clinical study to assess the safety and efficacy of IDP-118 (halobetasol propionate and tazarotene) lotion in the treatment of plaque psoriasis. IDP-118 showed statistical significance to vehicle with a treatment success rate at eight weeks of 35.76% to 6.98%.

The company’s strategy in 2017 is to invest in R&D and develop innovative products.

Valeant currently carries a Zacks Rank #5 (Strong Sell).

Key Picks in the Sector

A couple of better-ranked stocks in the health care sector include Sucampo Pharmaceuticals SCMP and Endocyte, Inc. ECYT. While Sucampo sports a Zacks Rank #1 (Strong Buy), Endocyte carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sucmapo’s earnings estimates increased from $1.03 to $1.22 for 2016 and from $1.58 to $1.74 for 2017 over the last 60 days. The company posted a positive earnings surprise in all of the four trailing quarters with an average beat of 35.5%.

Endocyte’s loss estimates for 2016 narrowed from $1.107 to $1.04, while the loss for 2017 narrowed by two cents. The company posted a positive earnings surprise in all of the four trailing quarters with an average beat of 10.2%.

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