Debt-laden Valeant can't afford to say 'never' to selling off Bausch & Lomb, CEO says

Valeant CEO Joseph Papa has been talking about selling off assets to pay down debt ever since he took the helm at the embattled drugmaker. Now that he’s renegotiated deals with creditors and rejigged his management team, he’s ready to make some deals.

The company will first look at hiving off non-core assets, Papa said Wednesday. “That would be where we would focus first,” the Valeant chief told CNBC

Valeant ($VRX) could rack up $8 billion for those assets, Papa figures.

Sell-off candidates would include Valeant’s skin-care unit Obagi Medical Products, which it bought in 2013 for $375 million, its Egyptian subsidiary Amoun Pharmaceuticals and its aesthetic devices business Solta Medical--or so says the word on the street. The company has reportedly been shopping those units for a few months.

Those smaller deals might not be enough to trim Valeant’s unwieldy debt load down to size, Papa acknowledges. After all, the on-the-block assets have troubles of their own; poor performance at Obagi, for instance, contributed to Valeant’s big sales-guidance cut early this year. With $30 billion in debt on the books--accumulated through a series of acquisitions that built the company to its current size--the company may need to turn to bigger sales.

“I’m never going to say never,” Papa said.

This is something of a turnabout for Papa, who in May said that selling off assets wasn't absolutely necessary. The company was working on the idea, but that didn't mean it had to follow through. “I don’t need to sell anything,” Papa said at the UBS Global Healthcare Conference 

Bigger asset sales might include Bausch & Lomb, the eye-care business that Valeant bought in 2013 for $8.7 billion--the very one that board member Bill Ackman, whose hedge fund has lost billions on its Valeant bets, recently called a last-resort sale.

It might also include the company’s core dermatology drug portfolio, built up via a series of deals: $475 million for Precision Dermatology;  $425 million for Sanofi’s ($SNY) Dermik unit; $345 million for Johnson & Johnson’s ($JNJ) Ortho Dermatologic, among others. And, of course, the $2.6 billion deal for Medicis.

If a buyer for those linchpin businesses surfaced, Valeant couldn’t turn them away, Papa said.

“Would we have to look at something if someone came forward? Of course we would because we're a public company, and we have over $30 billion of debt,” Papa said during the CNBC interview. “We have to look at it.”

Beyond dealmaking, Papa says he’s still working on his management team, with a particular eye to retaining top sales talent.

“There are some additional people things that we are working on,” Papa said. “In terms of just ‘rerecruiting’ the team, the existing team, to the business, that’s one of the things I think is just critically important, especially in my sales organization.”

The company has paid out millions in retention bonuses for top managers.

Valeant has already negotiated three small sell-offs, Papa said, and given the usual timing for striking a pharma deal, he figures more sale announcements could be forthcoming by the end of the year.

During the company's Q2 earnings announcement, Papa said Valeant had paid off $1.29 billion in debt so far. That news, along with word that the company had already embarked on asset sales designed to pay off debt, sent Valeant shares upward, according to some market-watchers. As Oliver Marti, portfolio manager at Columbus Circle Investors' Healthcare Strategies fund, told Reuters at the time that "the stock is really driven by cash flow and covenants with the focus on stabilizing the business, and making progress on paying down debt. That's what they showed this quarter."  

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