Valeant Pharmaceuticals International (NYSE:BHC) stock is up by double-digits today on heavy volume as the result of a better-than-expected third-quarter earnings release. Although the company reported a $260 million dip in year-over-year revenue due to weakness in both its U.S. diversified products and branded drug segments, investors appear to be pleased that the drugmaker is aggressively addressing its debt problem.
Specifically, Valeant reported that asset divestures, in part, helped to greatly accelerate the company's stated timeline of paying off at least $5 billion in debt by Feb. 2018 during the three-month period. As of 11:34 a.m. EST, Valeant's shares are up by 14.34% on this news.
The big question mark regarding Valeant's future has long been the ability of the company to pay down its tremendous debt load without having to divest any core assets. If Valeant was forced into selling its eye-care unit Bausch & Lomb, or its Salix business, for instance, the company's growth prospects would look radically different than they do today.
So far, though, CEO Joseph Papa has more than exceeded expectations on the lingering debt issue by only selling minor pieces of the company -- such as its Dendreon prostate cancer business and skin-care subsidiary Obagi Medical Products.
Whether or not Valeant can keep chipping away at its mountain of debt solely through the sale of non-essential segments remains to be seen, though. The fact of the matter is that growth within Valeant's all-important Bausch & Lomb segment is still extremely weak (1% in Q3 compared to a year ago) -- meaning the company simply may not be able to extinguish a significant portion of its debt through organic growth. Valeant's total revenues for the third quarter, after all, fell by a hefty 10% relative to last year.
To be fair, some of this weakness was the result of divestitures, but there's no telling when -- or if -- this downward trend will reverse course. So, while Papa's leadership has indeed produced some impressive results, Valeant still can't be considered a fundamentally sound stock at this point.