Skin is in for Valeant

Canadian pharma snags dermatology assets with two acquisitions totaling $770 million

Amy Swinderman
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MISSISSAUGA, Ontario—In the latest in ValeantPharmaceuticals International Inc.'s ongoing buying spree, the Canadian pharmaand its subsidiary, Valeant International, announced in July two acquisitionsto its growing dermatology portfolio: first, the purchase of Dermik, a dermatologyunit of Sanofi, for $425 million, followed shortly by the addition of the OrthoDermatologics division of Janssen Pharmaceuticals Inc. for $345 million.
 
The Dermik acquisition, announced July 11, gives Valeantseveral skincare assets, including $18 million of dermatology product inventoryas well as a contract manufacturing plant in Laval, Canada. The Laval site,which currently produces approximately 70 formulations and more than 200presentations of tablets, capsules, non-sterile liquids, ointments and creamsfor both Sanofi and third parties, reported $240 million in revenues last year.
 
Dermik's product portfolio includes leading therapeutic andaesthetic dermatology brands such as Benzaclin for the treatment of acne, Caracfor the treatment of keratoses and Sculptra, a facial injectable for thecorrection of facial wrinkles and folds. These products have a strong presencein the U.S. and Canadian dermatology markets, Valeant said in a press releaseannouncing the deal.
 
The Dermik transaction is subject to certain closingadjustments and regulatory approvals, including the termination or expirationof the Hart-Scott-Rodino waiting period, and is expected to be accretive in2011.
 
For its part, Sanofi says selling Dermik, which comprisedonly a small portion of its overall business, will allow the pharma "to furtherconcentrate on its growth platforms."
 
"Our manufacturing operations in Laval and our fieldoperations teams will benefit from Valeant's stronger presence in dermatology,"stated Christopher Viehbacher, CEO of Sanofi.
 
The Janssen acquisition, announced July 15, includesprescription brands Retin-A Micro, Ertaczo and Reova. Total revenue for theproduct portfolio was approximately $150 million in 2010.
The Ortho Dermatologics transaction is subject to certainclosing conditions and regulatory approvals and is expected to be accretive in2011.
 
Valeant for the last three years has worked to solidify itsposition in dermatology through a slew of acquisitions. Beginning in 2008,Valeant enhanced its dermatology portfolio with the additions of CoriaLaboratories, Dow Pharmaceutical Sciences Inc. and DermaTech Pty. Ltd. Over thenext two years, Valeant acquired Vital Science Corp. and Laboratoire Dr.Renaud, as well as various products from companies in Australia, Brazil andPoland.
 
With these acquisitions, Valeant now has a broad footprintin the dermatology space—one worth about $1 billion in revenues—with bothprescription and over-the-counter products for a variety of skin-relatedconditions, including actinic keratoses; skin cancer; acne; psoriasis; scar andpigmentation reduction; and skin aging.
 
"With the combination of this transaction and otherrecently announced transactions, Valeant is well on its way to being one of theleading companies in dermatology," stated J. Michael Pearson, Valeant'schairman and CEO, in a news release. "We believe that dermatology remainsan attractive therapeutic area for Valeant and we are pleased to able to addanother strong franchise to our growing operations."
 
Pearson also told Reuters that he wants to amass the world'sbiggest skincare business within five years. With a few more strategicacquisitions, this goal may be easily attained given that many big pharmacompanies are exiting dermatology to focus their pipelines on otherspecialties.
 
"We're ambitious in many ways," Pearson told the newsservice. "We just want to be a lot bigger than anyone else."
 
In an interview with Reuters, Stifel Nicolaus analystAnnabel Samimy called Valeant's strategy a sound one, adding, "They're outthere buying assets for cash flow and building a broad dermatology presence.The assets that they're buying are not necessarily the ones that require asignificant amount of promotion or expense behind them."
 
Valeant's other major specialization is neurology. Thecompany is based in Mississauga, Ontario, and has approximately 3,700 employeesworldwide. Following its $3.2 billion merger with Biovail last year, Valeant isnow Canada's largest publicly traded drug company.
 
Valeant plans to fund the transactions by using its$200-million credit facilities and $1 billion worth of debt. In a call toinvestors, Pearson said Valeant expects to move outsourced U.S. production ofits existing brands to Laval, which should reduce its costs.
 
But is Valeant eyeing other acquisitions?
 
"Obviously, bigger deals get you there quicker, but I thinkwe've made an awful lot of progress in the last couple of years going from a$20-million business and three years later we're at $1 billion," Pearson toldinvestors.

Amy Swinderman

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