Controversial drug-maker Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is due to report its Q2 results on August 8. The Street is forecasting EPS of $0.96 versus EPS of $1.4 in the same period last year. Ahead of this key date we wanted to look at what the results could hold for this volatile Canadian stock. After shares took a downward spiral in 2015 following a drug-pricing scandal, prices dropped all the way from $33 to just $8. However finally prices are on the mend- rising from $9 to $17.5 in the last three months.

This improved sentiment gives an indication of the fact that this quarter has been kind to Valeant. Let’s take a closer look at the various factors weighing on the stock:

  • Valeant has been busy reducing its massive debt position this quarter. When CEO Joseph Papa joined VRX he set a target of reducing debt by $5 billion over 18 months- which works out as the start of 2018. The company previously had debt of over $30 billion. Valeant is actually on track to achieve this target due to a series of non-core divestures. Most recently, on July 17, Valeant announced that it is selling Obagi Medical Products for $190 million in cash. The divesture of this skincare business will help VRX focus on its core units (like Bausch + Lomb and Salix).

    Valeant has also just announced that it has redeemed the remaining $500 million Senior Notes due in 2018. The good news is that as a result Valeant will have no significant debt maturities and no mandatory amortization requirements through 2019- giving it the flexibility and time to plan how it want to address its debt position going forward.

  • The company is simultaneously working to up its revenue growth. Of particular note is VRX’s Siliq drug for the treatment of moderate to severe psoriasis which is due to be launched in the second half of this year. The drug received FDA approval back in February. The psoriasis market is a very valuable market to crack- GlobalMarket calculates that its total addressable market size is around $13.3 billion. There are other drugs competing in the space already (see Novartis’ Cosentyx as a major example), but Siliq’s cheaper price of $3,500/ month could well give it an edge despite the black box suicide ideation warning. In the meanwhile, top Stifel Nicolaus analyst Annabel Samimy also says she expects “stable growth” for Valeant’s Bausch + Lomb eyecare franchise as well as its consumer businesses.
  • Hedge fund billionaire John Paulson joined the VRX board in June after his fund took a $2 billion position in the stock. This works out at about 6.3% of total VRX stock. Paulson, who made a spectacular bet against the housing market before the financial crisis of 2008, could have a positive influence on the company’s strategic decision making and the retention of shareholder value. On the other hand, he has made some bad bets on healthcare stocks in the past including on Allergan and on Valeant itself.
  • Investors are also encouraged by VRX’s commitment to guidance. In particular, CFO Paul Herendeen is known to make his guidance conservative so as not to create unrealistic expectations going into the print. He is now guiding for Adjusted EBITDA (non-GAAP) of $3.6 billion to $3.75 billion for full year 2017. This is up from previous guidance for the year of $3.55 billion to $3.7 billion. However Herendeen says this does not include the sale of biotech Dendreon to Sanpower for $820 million which completed at the end of June. It does reflect the impact of the sale of the CeraVe, AcneFree and AMBI skincare brands.

Valeant has a Hold analyst consensus rating, according to financial accountability TipRanks, with most analysts sidelined on the stock. This consensus is based on the 3 buy, 9 hold and 3 sell ratings published on the stock in the last three months. In terms of average analyst price target, analysts are forecasting that over the next 12 months, VRX has -3.29% downside potential from the current share price.