Valeant Pharmaceuticals (
) has more than tripled its annual revenue over the past three
years, and it didn't get there by working overtime in the lab
coming up with new elixirs.
Instead, the Canadian drugmaker has relied heavily on
acquisitions to enter new markets and beef up its product
Valeant's aggressive M&A strategy has reached an even
higher gear this year amid a series of buyouts -- including its
announcement earlier this month to buyMedicis Pharmaceutical (
) for $2.6 billion -- that have expanded the company's reach even
Valeant is a specialty pharmaceuticals firm that sells
branded, generic and over-the-counter products in markets around
The company's biggest revenue contributor is its U.S.
neurology and other division, which includes the Wellbutrin XL,
Cardizem CD and Ultram ER brands. But Valeant's key growth driver
lately has been its U.S. dermatology unit, which includes the
Zovirax, Acanya, Atralin and CeraVe brands.
All of Valeant's segments have benefited from the company's
aggressive acquisition strategy. It has made about 50 buyouts
since Michael Pearson took over as chief executive in 2008,
including more than a dozen this year.
The Medicis acquisition, announced on Sept. 4, would be the
largest since Valeant merged with Biovail in 2010.
Medicis, based in Scottsdale, Ariz., develops branded
pharmaceutical products to treat dermatological and aesthetic
conditions. It had $721 million in sales last year. Its Solodyn
and Restylane brands should provide a major boost to Valeant's
lineup of wrinkle and skin care products.
"Valeant's acquisition of Medicis is a positive event both
strategically and financially," noted Alan Ridgeway, an analyst
at Paradigm Capital. "The combined franchise should benefit from
scale that neither company could have generated on its own."
He says Valeant expects to achieve at least $225 million in
annual cost synergies within the first six months of closing.
The deal is expected to close during the first half of 2013
and be immediately accretive to earnings. Valeant said it will
pay $44 a share for Medicis, a 39% premium over Medicis' closing
price before the deal was announced.
"The acquisition represents a significant next step in our
journey to become the leader in dermatology by strengthening
Valeant's presence in acne, actinic keratosis, aesthetic
injectables and anti-virals, among others," CEO Pearson said in a
Both stocks soared on the news. Medicis' shares rose more than
38%, while Valeant's stock price gained 14.65% to an all-time
closing high of 58.78. Shares peaked at 61.11 on Sept. 7 and
currently trade near 56.
But in some respects, it was just another day at the office
for Valeant, which seems to announce a new deal every month in
just about every corner of the world.
In June the company paid $312 million to acquire OraPharma, a
specialty oral health firm. That deal came a month after Valeant
bought assets from University Medical Pharmaceuticals and Swiss
In April, Valeant acquired specialty drug firm Pedinol
Pharmacal. It also bought certain branded generic assets from
Atlantis Pharma, a Mexican pharmaceutical company.
March saw Valeant buy Russian specialty pharmaceutical company
Natur Produkt; certain branded generic assets from Austrian drug
firm Gerot Lannach; and a 19.9% stake in Brazilian biotech Pele
In February, Valeant bought Probiotica Laboratorios, a
Brazilian provider of sports nutrition and food supplements.
These deals have helped ease the sting of Valeant's failed
attempt last year to buy specialty drugmaker Cephalon. Valeant
was outbid by generic-drug giantTeva Pharmaceutical Industries (
), which paid nearly $7 billion for Cephalon.
Valeant's acquisition strategy is a big reason it saw annual
sales grow to nearly $2.5 billion in 2011 from $820 million two
The company has already racked up $1.67 billion in sales
during the first two quarters of 2012. It has grown the top line
at least 34% each of the past seven quarters. Earnings have
gained at least 22% each of the last five quarters.
Second-quarter earnings came in at $1.01 a share, up 38% from
the prior year and a penny ahead of estimates. Revenue gained 35%
to $820.1 million, in line with views. Pro forma organic revenue
growth was about 10%.
Product sales climbed 41% to $748.7 million, led by strong
performances in its U.S. dermatology, Canada/Australia and
Emerging Markets segments.
Meanwhile, Valeant has unveiled plans to improve its gross
margin from the current mid-70% range to a level closer to 80%.
Much of this work will be completed over the next 18 to 24
months, according to an August note from JPMorgan analyst Chris
Among other things, Valeant looks to renegotiate certain
partnership agreements it inherited in the Biovail merger to make
them more profitable.
"While these efforts could modestly impact top-line results,
we anticipate they should be clearly positive to the company's
bottom line," Schott noted. "Further, the company is in the
process of consolidating facilities acquired through its various
acquisitions and continues to look to outsource manufacturing if
The company's near-term profit outlook is strong. Analysts
polled by Thomson Reuters expect Valeant to grow earnings 73%
this quarter and 43% next quarter.