JP Morgan – Valeant finds a way to make Dendreon profitable

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Valeant’s sale of the century continues, and it is surely no coincidence that the not insignificant offloading of $2.1bn of assets was announced during the JP Morgan conference, when the eyes of the world’s healthcare investors are squarely focused on one place.

Perhaps most surprisingly, the notorious Dendreon is among the assets that have found a buyer, in the shape of a private Chinese conglomerate, Sanpower – for $820m. Of course it is not immediately clear how much Valeant had invested in Dendreon, but the fact it had paid only $495m for it two years ago suggests that, against the odds, it found a way to make a profit out of this business.

Unfortunately for Valeant, not many equity investors care any more, or at least not the ones that have seen their holdings crater by 83% over the past year. Still, creditors anxious to know whether they will get any of the $30bn in debt still outstanding can take comfort that there are some parts of the company worth buying.

The second sale Valeant announced during JP Morgan was that of three non-prescription skincare brands – Cerave, Acnefree and AMBI – to L’Oréal for $1.3 billion in cash. These products have approximate annualised revenues of just $168m, so clearly to pay such a considerable multiple their acquirer must have considered them to be well worth having.

Provenge interest

It is Dendreon’s prostate cancer immunotherapy Provenge that will generate more interest among seasoned biotech followers.

This had been launched in 2010, and has the distinction of being the first autologous immunotherapy to gain US approval. However, it was a commercial flop for reasons including a complex manufacturing process, its limited clinical benefit, and the advent of highly efficacious competitors for prostate cancer.

Ultimately, given its relatively low price compared with the current wave of adoptive cell therapies nearing the market, Dendreon failed to make it profitable, and eventually a poor capital structure saw the company collapse under its debts.

However, Provenge remained on the US market, and Valeant picked it out of Dendreon’s bankruptcy. It is possible that, without Dendreon’s debt and with different pricing and manufacturing, Provenge could still become an interesting niche product, though blockbuster expectations have been unrealistic for some time.

Last year Provenge is thought to have sold around $250m, though Valeant does not break out its revenues, and Mizuho expects 2016 sales to reach $300m, with a 60% operating margin. Evercore ISI reckon on a similar level of sales, but with a 35% margin.

Sanpower’s plans for the business are unclear, and indeed the group does not have a major presence in medicines, though in 2015 it co-founded a healthcare investment fund. The Chinese group describes itself as a conglomerate whose core businesses are in the “technology and modern service industries”.

What it does with Provenge is of no concern to creditors, who simply want to know whether enough value is left in Valeant to pay down an eye-watering debt mountain that dwarfs its $5bn market cap.

To contact the writer of this story email Jacob Plieth or Amy Brown in London at news@epvantage.com or follow @JacobPlieth or @ByAmyBrown on Twitter. 

For live updates from the JP Morgan healthcare conference in San Francisco on January 9-12 follow @ByMadeleineA on Twitter.

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