Valeant Pharmaceuticals (NYSE: VRX) is continuing to make inroads in cutting down its debt. On June 8, the company said it would sell iNova Pharmaceuticals. The $1-billion cash infusion is a positive step towards strengthening the company’s balance sheet.
VRX’s CEO Joe Papa, said "The sale of iNova is part of the company's ongoing efforts to both simplify our operating model and strengthen our balance sheet. We will continue to evaluate opportunities that will enable us to deliver on our commitments and unlock value for shareholders."
Papa appears to be doing a great job. VRX bought iNova for around $620 million. The sale represents a double and negates past comments from short-sellers that it overpaid for assets. The company is not aiming to cut debt to zero. It just needs a manageable, levered, balance sheet that is supported by cash flow from operations. By cutting debt in half, to between $15 billion - $20 billion, Valeant’s debt will cost less and the company will reach profitability sooner.
SILIQ is the next positive catalyst for Valeant. The psoriasis drug, although labeled with a black box warning, is competitively priced and targets a massive market.
Takeaway
iNova’s selling price of nearly a billion reassures investors that Valeant is not having a fire sale. iNova is one less distraction and management may continue its focus on turning the company around.
