The extent to which Valeant Pharmaceuticals International, Inc.'s (VRX) asset sales can bring its share price back from the dead is now being hotly debated. And it now seems that short sellers, who have banked massively – and correctly – on the company's struggles, have begun to take fewer risks.
As of the most recent settlement date, the embattled drug company saw its short interest decline almost 14% to 29 million shares, down from 33.7 million shares a month ago. If you ever want to know how the market feels about a particular company, the stock's short interest movement can often serve as your best gauge. Short interest offers a sense of how pessimistic or bearish investors are about a company over a certain time period.
(See also: Valeant Soars 14% on $2.12B Worth of Asset Sales.)
It would seem that Valeant, which has seen its stock price rise around 9% in 30 days, has given short sellers a reason to think twice. In an effort to grow cash to pay down its massive $30 billion in debt, the company announced plans last week to sell its CeraVe, AcneFree and AMBI skin-care brands to L'Oral for $1.3 billion in cash.
(See also: Top 5 Companies Owned by L'Oral.)
The sale to L'Oral comes comes on the heels of another asset sale. In the same week, Valeant said it entered into an agreement to sell all the outstanding equity interest in Dendreon Pharmaceuticals to the China-based Sanpower Group Co. Ltd. In total, both deals are valued at $2.12 billion – far from the $30 billion Valeant needs to meet its long-term obligations.
However, the market sees these developments as a positive sign that Valeant, which has become the face of corporate greed due to its price increases, may not have to default after all. In this context, the short sellers are less willing to take a chance.
Valeant stock closed Friday at $15.33, down 1.92%. The shares have risen 5.58% year to date, compared with a 1.6% rise in the S&P 500 (SPX) index.
(See also: Health Care Stocks With Short-term Upside.)