Troubled Valeant unloads Dendreon, skin care brands for $2.1B in turnaround cash

Valeant
Valeant is selling off non-core assets as part of a major turnaround plan.

Valeant is using the J.P. Morgan Healthcare Conference to make a big statement about its arduous turnaround, which is largely focused on paying down its $30 billion debt burden. Tuesday, the company announced a couple of long-awaited asset sales that will yield $2.1 billion in cash.

Valeant plans to unload its equity interest in cancer drugmaker Dendreon, which has had a troubled history of its own, as well as its skincare brands CeraVe, AcneFree and AMBI.

Valeant agreed to offload those skincare brands to cosmetics giant L'Oréal for $1.3 billion in cash. The three products have annualized revenues of $168 million, Valeant said in a release. The deal, said CEO Joseph Papa, demonstrates the “progress” Valeant is making “in reshaping our product portfolio and driving value for our shareholders.” The company will use the proceeds to repay debt.

In the second deal, Valeant will sell its equity interest in Dendreon to China’s Sanpower Group for $819.9 million in cash, it said in a separate statement. Dendreon makes Provenge, a personalized immunotherapy for prostate cancer that attracted a lot of hype when it was approved by the FDA in 2010 but never quite caught fire in the oncology community. Valeant will pay down debt with those proceeds as well.

Chipping away at its enormous debt load and fixing its lagging dermatology business are key to a turnaround plan Valeant began last year, and the company still has a long way to go. Valeant suffered a bad miss in its third quarter earnings, as revenue fell 11% year-over-year, crushed by a rise in managed-care rebates and poor performance from Salix Pharmaceuticals. Valeant bought Salix, a gastrointestinal drugmaker, for $11 billion with high hopes, but it's lagged ever since.

Meanwhile, some of Valeant's top executives are jumping ship, and the company is drawing criticism for hiking prices on drugs after vowing that it wouldn’t.

The asset sales were widely predicted—and there may very well be more to come. Papa said in September that selling off non-core assets could net the company $8 billion.

Some analysts predicted Valeant will give up on Salix and put it on the block. It could even cast off its prized eye unit, Bausch & Lomb, even though it was one of the few bright spots last quarter. That business, which Valeant bought in 2013 for $8.7 billion, grew revenue by 4% year-over-year to $1.16 billion.

Carving off non-core units may be Valeant’s only logical strategy right now, especially because its drug pipeline lacks any obvious blockbusters. The company did announce positive phase 3 trial results on Tuesday for a combination psoriasis therapy, IDP-118, but it will be far from a surefire hit: Payers are skeptical these days of meds that marry two existing drugs, which Valeant's prospect does.

Another candidate in psoriasis, brodalumab, would face competition from Novartis’ Cosentyx and Eli Lilly's Taltz, both already on the market. Finally, Valeant's latanoprostene bunod ophthalmic solution, pegged as a potential blockbuster, was snubbed by the FDA in July.

Then there’s the price increase problem. On January 6, Valeant raised prices on 95 products, according to Wells Fargo Securities, which discovered the moves after scrutinizing data from Medi-Span PriceRx. The average increase was about 8%.

“In our opinion, this is an example of Valeant's continued reliance on price as a means of growth and may also signal that Valeant's prescription volumes continue to remain challenged,” analyst David Maris wrote in a note to investors.

Those hikes come on top of another set announced in October, which amounted to 2% to 9% in its gastrointestinal and urology portfolios. Critics cried foul, because the company had vowed to stay away from major price increases after it drew criticism for jacking up the prices of two old heart medications in 2015. This latest round increases, Maris said, indicates that “the ‘new Valeant’ is the same Valeant using the same strategy and pricing levers that have been used before.”

Those pricing strategies may not do much to help Valeant right the ship, but investors clearly approve of the asset sales. Its shares soared 13% in pre-market trading to $17.39 on Tuesday.