Loaded up with debt from M&A binge, Valeant still needs more deals

Valeant CEO J. Michael Pearson

Things appear to be going pretty smoothly for serial dealmaker Valeant ($VRX) since its failed bid for Allergan ($AGN) in November. The Canadian pharma bounced back with two deals earlier this year and is rumored to have another one in the works, helping it deliver on its goal of expanding into high-growth markets to become one of the world's top-5 drugmakers by 2016.

But Valeant's M&A binge could be taking its toll on the company, even as it continues to ink new deals and score points with investors. As Bloomberg reports, the Laval, Quebec-based company has largely relied on debt to fuel its deal-making engine, bringing the amount of money it owes banks and bondholders to 6.6 times what it earned before interest, taxes, depreciation and amortization in the past 12 months. For comparison's sake, the average Standard & Poor's 500 company is half as indebted, the Bloomberg article notes.

"Valeant's entire story is: Buy something, gut it, get a one-time boost from firing everybody, jack up prices on products and then go buy something else," Gimme Credit analyst Vicki Bryan told the news outlet. "It buys low-quality assets, overpays substantially for them and loads up with debt to do it."

Still, Valeant's New York-listed stock has shot up 94% in the past 12 months--its best rolling 12-month performance since it was founded in 2010--and its bonds are outperforming the broader high-yield market, according to Bank of America Merill Lynch Indexes seen by Bloomberg. Many analysts are counting on the company's avid dealmaking strategy to keep its train chugging along, despite its failure to win Allergan.

That failed deal was "a disappointment for Valeant management," Morningstar analyst Michael Waterhouse told the news outlet. But "there's still a lot of opportunity for this company to find attractive deals, so there's probably a pretty long runway left," he added. Valeant in February snatched up prostate cancer vaccine Provenge from bankrupt Dendreon for $400 million to expand its footprint in oncology. The Canadian pharma snatched up Salix Pharmaceuticals ($SLXP) the same month for $10.1 billion, grabbing a piece of the fast-growing GI market.

But Valeant is also setting its sights abroad, reportedly eyeing an $800 million deal for one of Egypt's largest drugmakers, Amoun, to beef up in developing countries. And if CEO J. Michael Pearson has his way, the deals will keep flowing in the 2015, bringing the company one step closer to hitting its ambitious growth targets.

"We are continuing to focus on building diversified, durable businesses with strong organic growth platforms and pursuing disciplined business development opportunities," Laurie Little, Valeant spokeswoman, told Bloomberg. "With 2015 off to a strong start, we are well positioned for another year of outperformance."

- read the Bloomberg story

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