Of a basket of companies traded on the TSX, few have performed worse over the past couple years than Valeant Pharmaceuticals Intl. Inc. (TSX:VRX)(NYSE:VRX).
The company is down nearly 95% from its peak, and investors have generally steered clear of this company due to its massive debt burden and its severely hampered growth prospects moving forward due to a number of key asset sales of late.
With the pharmaceutical giant posting solid earnings last week, investors have begun to take another look at Valeant, with specific interest in how the company is paying down its debt load.
Valeant currently has a debt level slightly above $28 billion, however during the last quarter Valeant was able to chip away at its debt level on the order of $1.3 billion.
In the earnings release, the company noted that it is on track to paying down approximately $5 billion per year, reducing its leverage and interest expense, thus increasing its profitability long-term, as long as its earnings stay robust and the company can generate revenue from some of the products in its pipeline.
Valeant’s business model has now changed to a debt repayment model, one in which the company expects to be able to pile most of its free cash flow into paying debt, with the hopes that R&D spending will be able to pick up in the next year or two to support new product development, the lifeblood of a large pharmaceutical firm like Valeant.
For the time being, Valeant may remain too risky for many, however with a stock increase of more than 50% over the past month, investors willing to take on the risk have been very well-rewarded.
I will keep my eye on Valeant’s performance over the next few quarters – if the company is able to continue turning profits and beating analyst expectations, Valeant could be yet another "head shaker" for 2017.
