"The silver lining that has come out of the Allergan situation is that we have already reported one relatively clean quarter," said Little. "By delivering several more clean quarters over the next several months, we will clearly show the strength of our base business."
By clean quarter, Little was referring to the absence of one-time acquisition costs that frequently appear on Valeant's balance sheet.
Valeant has more than $16.3 billion of debt as of September 30 and is rated Ba3 by Moody's, the third level of junk status. Improving its credit rating will help it pay for acquisitions down the road, the sources said. In fending off Valeant's cash and stock bid, Allergan repeatedly questioned the financial strength of its unwanted suitor. In the end, it agreed to a $66 billion buyout by generics maker Actavis.
Valeant said last month it would spend up to $2 billion buying back senior notes, shares and other securities.
Over the next two to three quarters, Valeant also aims to sell more of its new products, which includes toenail fungus drug Jublia, athlete's foot product Luzu, acne treatment Onexton and a new line of Bausch and Lomb Ultra contact lenses.
Valeant has little choice but to put big acquisitions on hold because they have little cash and their stock is "poor currency" after losing Allergan, said Vicki Bryan, analyst at Gimme Credit, an independent research service on corporate bonds. Valeant's pipeline of new products isn't as strong as other companies', and if it spends more on research and marketing, profit margins may narrow, Bryan said.
"Reactive (strategy) is way more expensive than proactive," she said.
Glenn Greenberg, managing director of Brave Warrior Advisors, a Valeant shareholder, said Jublia and B&L Ultra together have estimated sales of $1 billion and could contribute profits of $2.50 a share.
Valeant's strategy persuaded San Francisco-based hedge fund ValueAct Capital to return to Valeant's board in September after a hiatus of several months. ValueAct CEO Jeff Ubben told Reuters that Valeant's "stand-alone business plan is exciting, and is the main reason we rejoined the board."