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Joseph "Joe" Papa, CEO of Valeant Pharmaceuticals  Photograph by Chris Goodney — Bloomberg/Getty Images

Valeant Just Made a Killing on a Series of Drug Deals

Jan 10, 2017

Finally, some of beleaguered drug company Valeant Pharmaceuticals' deals are paying off.

Valeant (vrx) is selling its cancer business Dendreon as well as three skincare products for total proceeds of more than $2 billion, the company said in a flurry of announcements overnight. Altogether, the sale represents a more than triple-bagger return for Valeant in a relatively swift time frame, with certain assets sold for several multiples more than what Valeant paid for them. Valeant stock surged as much as 6% Tuesday on the news.

Take Dendreon, which makes cancer immunotherapy treatment Provenge, for example. In February 2015, Valeant paid $495 million for Dendreon, which was then in bankruptcy. (Valeant had initially agreed to a purchase Dendreon for $296 million, but raised its offer to push the bid through bankruptcy court approval.) On Monday evening, Valeant said it would sell Dendreon for about $820 million to Sanpower Group, a Chinese conglomerate.

That's a return of 66% in less than two years—not a bad profit, particularly on a bankrupt asset like Dendreon. "Pretty good, in our view," Mizuho analysts wrote in a research note. By comparison, Valeant stock has lost 92% over the same period.

Valeant is reaping an even bigger return on a trio of skincare brands including CeraVe, AcneFree and Ambi, which it said Tuesday it would sell to L'Oreal for $1.3 billion. The drug company had scooped up the dermatology products in a series of small transactions between 2008 and 2012, paying about $150 million for the three combined, according to estimates by Evercore ISI analyst Umer Raffat. That means Valeant is making nearly eight times the money it paid for the skin products. "Some good news finally," Raffat wrote in the title of his note to clients on the news.

Indeed, such success is a welcome change of pace for Valeant, which had said last year that it was looking to sell off as much as $8 billion in assets—or more if the price was right—in order to pay down its heavy $30 billion debt burden. As recently as November, Valeant was desperate enough that it was considering selling its Salix gastroenterology business, reportedly at a loss of at least $1 billion on what it paid for the company. But those deal talks fell through, The Wall Street Journal reported.

Still, Valeant needs to raise a lot more cash in order to accomplish its goal of paying down $5 billion in debt by early next year. Not all of that needs to come from asset sales; Valeant hopes to contribute some of its own free cash flow to reducing the debt as well. But it will certainly go faster if Valeant can continue to flip assets at major premium prices.

And Valeant seems to have become more open-minded about the assets it is willing to sell. While Valeant shareholder and board member Bill Ackman said last April that the company "was only considering selling non-core assets," the drug company has since changed its tune, based on recent comments from Valeant's new CFO Paul Herendeen.

"In a nutshell, if someone offers us a value that exceeds, even by a little, the value of the asset in our hands, we should sell that asset. It's simple," Herendeen said on Valeant's latest earnings call in November. "Now let me be cle ar, our preference is to keep the businesses we identify as core, but not at all costs."

Prospective buyers should hear that as an open call for bids.

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