It's no time for a fire sale at Valeant Pharmaceuticals (VRX).
The troubled Canadian drugmaker -- which is now being forced to walk back on its former debt-fueled strategy of snapping up companies and subsequently hiking prices on acquired drugs -- will have to perform a careful balancing act it begins to unwind some of its businesses to shore up cash.
Short-seller Andrew Left, whose company Citron Research was first to put a spotlight on accounting improprieties at Valeant last fall, said in an interview with Real Money Wednesday that if Valeant sells off assets at too steep a discount, it could spell disaster for shareholders.
Shares of Valeant are down roughly 86% since Citron first advocated that the U.S. Congress subpoena the drugmaker for so-called "price gouging" its customers on some of its drugs. (Valeant's CEO at the time, Michael Pearson, has since apologized to a Congressional special committee for putting shareholder interests above patients, and Valeant has admitted to $58 million of improperly booked sales tied to a former partnership with mail-order pharmacy Philidor.)
"If they sell a business for significantly less than what they purchased, the company could completely implode," Left said. "People have no confidence in the business model and it shows in the stock price. ... This thing looks like The Walking Dead," he said, referring to the AMC series that portrays a zombie apocalypse.
And as Real Money reported, some Valeant assets -- namely one of its so-called "crown jewel" assets, eye-care giant Bausch & Lomb -- could be worth significantly less now than when Valeant scooped it up for $8.7 billion in 2013.
Wells Fargo Securities analyst David Maris said last week that Bausch & Lomb may not bring in enough cash as shareholders may expect if it is ever put on the auction block.
Maris noted that Bausch & Lomb booked more than $3 billion in sales in 2012, based on its S-1 filing with the SEC, but Valeant is now touting $3.5 billion in total annual sales for Bausch & Lomb combined with its skin-care businesses and other over-the-counter products. (Wells Fargo Securities maintains an Underperform rating on Valeant, despite an Overweight rating on the specialty pharma industry.)
And July is shaping up to be a crucial month for Bausch & Lomb, as Valeant and France-based partner NicOx S.A. are looking to nab FDA approval Vesneo, a glaucoma treatment and the "cornerstone for Valeant's Bausch & Lomb franchise," Rodman & Renshaw analyst Raghuram Selvaraju said in a Wednesday report. (Rodman & Renshaw maintains a Buy rating on Valeant and a $90 price target.)
It's unclear when Valeant intends to offload its businesses, but new management at the helm -- including new CEO Joseph Papa and newly inducted board member Bill Ackman of Pershing Square -- say asset sales will be central to Valeant's future.
And Left says there may be more deals coming to the market this summer than most expect, given the cheap availability of credit thanks to the low rates being tamped down by the Federal Reserve.
"The Fed is pushing Wall Street," Left said. "It's cheap money. You're kind of being forced to do deals."
