Valeant Pharmaceuticals (TSX: VRX) is doing well with the proceeds it made from selling Dendreon. The company used the net proceeds of $811 million to pay down its debt. Since last year, the company paid $4.3 billion of its debt. It still has over $26 billion to go. Valeant will not get rid of all its debt in the year ahead but will run on a levered balance sheet without risk of insolvency.
Management is clearly doing the right things. Ahead of its next quarterly report set for next month in August, it remains on track to cut debt by $5 billion starting Q4/2016. That leaves just $700 million in repayment to reach this debt reduction goal.
Valeant will probably keep a total debt in the range of $15 billion to $20 billion. Positive operating cash flow will allow the company to keep an elevated balance sheet. Looking ahead, the company has new product launches (SILIQ), re-formulations from Salix and B+L, and newly approved drugs to increase cash flow.
Bullish investors want VRX stock to trade back at $100 - $150 a share but that is unlikely in the near-term.
The sector is undergoing pricing pressure. Generic drugs are facing headwinds as governments scrutinize the pricing model. Once these uncertainties are resolved, VRX stock may continue its recovery.
