Believe it or not, Valeant Pharmaceuticals' (NYSE:BHC) stock is actually outperforming the S&P 500 so far in 2017. That's a far cry from the shellacking Valeant took last year, losing 85% of its value. Selling some of its assets is helping the drugmaker to take the first step toward rebounding. What might Valeant sell off next?

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What's probably not on the block

Valeant has already sold several of its businesses. Most recently, the company announced on Jan. 10 that it was selling skin-care brands CerAve, AcneFree and Ambi to L'Oreal for $1.3 billion. The previous day, Valeant reported the sale of Dendreon to Sanpower Group for nearly $820 million.

Earlier last year, Valeant sold its North American commercialization rights to hereditary angioedema (HAE) drug Ruconest to Pharming Group for $60 million upfront and potential milestones of up to $65 million. The company sold some of its neurology medical device products to Stryker. Valeant also changed its agreement with AstraZeneca to give up marketing rights in Europe for autoimmune disease drug brodalumab.

Joe Papa, Valeant's CEO, has also said that he doesn't want to sell any of the company's core assets. He defined core assets in a couple of ways. First, Papa doesn't want to sell certain business segments, in particular, Valeant's Bausch + Lomb eye care, dermatology, and consumer products businesses. Second, he prefers not to sell off assets in the U.S. and Canada, which Papa considers Valeant's core markets.

There's a possibility that other businesses could be put on the block, though. In September 2016, Papa admitted that he is "never going to say never" about selling some of the company's core assets. In fact, rumors flew late last year that Valeant might be exploring the sale of Bausch + Lomb.  There were also reports that Takeda was interested in buying Salix for $10 billion, although no deal was made. 


So what might Valeant sell off next? Probably the best place to start would be high-dollar assets that Joe Papa would consider to be non-core.

In 2015, Valeant acquired Sprout Pharmaceuticals for $1 billion in cash plus a share of future profits based upon the achievement of milestones. The total value of the deal was $1.45 billion. Sprout's lead drug is Addyi, a drug that treats decreased sexual desire in some women. Valeant is currently in a lawsuit alleging that the company botched the marketing of the drug.

Because of the disappointing results from the launch of Addyi, it's questionable how much money Valeant could get from selling the Sprout business. However, I'd put this asset near the top of the list for selling -- if the company can find a buyer.

Another top candidate for Valeant's garage sale might be Amoun Pharmaceutical. Valeant bought the Egyptian drugmaker in 2015 for $800 million plus contingent payments. Amoun's primary products include anti-hypertensives, broad-spectrum antibiotics, and anti-diarrheal drugs. 

I wouldn't be surprised if Valeant also shops Solta Medical to potential buyers. Valeant bought the medical-device company in 2013 for $250 million. Solta's lead product is the Thermage CPT system that uses radiofrequency energy for skin tightening.

There could be some dark horses in the race as well. Although Papa included dermatology as a core asset, its Obagi dermatology products could be up for sale. Valeant bought Obagi in 2013 for $344 million. A real long-shot candidate could be marketing rights outside the U.S. for Xifaxan. I wouldn't think Valeant would want to take this option, but Papa did say that he didn't consider countries outside the U.S. and Canada to be core markets for the company.

Will it be enough?

Valeant has committed to reducing its debt by roughly $5 billion by early 2018. Its deals made so far total around $2.7 billion. All proceeds from these sales will go to paying down debt. But will this be enough?

The company has over $30 billion in debt. Moody's downgraded Valeant's credit rating to B3 in November, which means that Valeant is considered as a "high credit risk." Even after lowering its debt by $5 billion, Valeant would still be stuck with an enormous debt load. 

Of course, Valeant probably wouldn't stop at just paying down its debt by $5 billion. Papa has previously stated that he thinks selling non-core assets could generate proceeds of around $8 billion in total.

Papa and the Valeant team have to walk a tightrope. They need to reduce debt while preserving enough assets to ensure the company can grow sales. What the drugmaker sells next could give a big clue as to whether or not Valeant can truly become "the turnaround opportunity of a lifetime" that Papa says it is.