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Let Courteney Cox Brighten Up Your Stock Portfolio
By Michael Brush
Exclusively for InvestorIdeas.com
June 26, 2008
A small drug company called Valeant (VRX) offers something we don’t see much of in this grim market. Its stock is in a decided uptrend -- and insiders are buying a lot on the strength.
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Valeant has some promising drugs in the pipeline and many more on the market that make it a cash machine. But it is also a turnaround.
What’s intriguing is that the main buyer in the recent strength is the new chief brought on board last February to manage this fixer upper. He obviously thinks it’s going well – and going to get better.
Valeant stock is up about 40% since the start of the year. In the strength, chief Michael Pearson has purchased $3.3 million since late May, at prices not too far below current levels. A chief administrative officer also bought $140,000 worth of stock.
The basics
Valeant sells the Kinerase line of moisturizers and skin treatments based on a plant extract called kinetin, for which Courteney Cox, of Friends, is the spokesperson.
But Valeant is mainly an international drug company that sells treatments for neurological and dermatological disorders.
For example, it offers Diastat AcuDial used against seizures; Mestinon which treats a muscle disorder called myasthenia gravis; and Efudex which is used to treat a skin disease known as solar keratoses, or lesions from too much fun in the sun.
The restructuring
Valeant hired Pearson last February to oversee a turnaround which includes the following changes.
- The company is selling off some operations around the world so that it can focus on markets in United States, Mexico, Canada, Brazil and Australia. Last December it sold subsidiaries and product rights in Asia. It recently sold its business in Argentina. It’s working with Goldman Sachs,
(GS) to sell its European division. And it has a problematic division in Mexico to clean up.
- The company is restructuring and cutting costs. It’s revamping its marketing budget and rationalizing its research programs.
- The company is also selling off some of its drugs – like a hepatitis C drug that it got rid of in January.
The pipeline
Next, the company has to find partners for the two main drugs in its pipeline.
One of these is retigabine, a potential treatment for epileptic seizures and for neuropathic pain, which results from damage to the nervous system. The company recently reported positive results in the second of two Phase III trials for this therapy.
The second pipeline drug is taribavirin, a potential treatment for hepatitis C. Earlier this month at a Goldman Sachs healthcare conference the company said taribavirin could replace standard hepatitis C treatments that can cause anemia in some patients.
Financial strength
One of the objectives of the restructuring is to improve the company’s balance sheet, but it already has some decent financial strength.
The company has about $5.80 a share in cash and a similar amount of debt. It produced $43 million in operating cash flow last quarter. And it has a share buyback program in place. Last week, the company upped the buyback by $100 million. It originally launched a $300 million buyback plan in June 2007.
In announcing the increase in the buyback plan, Pearson suggested the company could increase the buyback even more – as more cash comes in from the sales of divisions of the company.
A generic in the balance
There’s also a cloud on the horizon. Valeant is in a dispute with the Food and Drug Administration over approval of a generic form of Efudex, as well as the maker of the generic form of the drug.
This could be a big deal, because Efudex accounted for 12.6% of revenue last quarter.
The bottom line: Despite the dispute over the generic drug, the market seems to like this turnaround so far. And so do insiders – especially the guy who is leading the charge. Those are two pretty bullish signals.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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