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Skin is in for Valeant
August 2011
by Amy Swinderman  |  Email the author
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MISSISSAUGA, Ontario—In the latest in Valeant Pharmaceuticals International Inc.'s ongoing buying spree, the Canadian pharma and its subsidiary, Valeant International, announced in July two acquisitions to its growing dermatology portfolio: first, the purchase of Dermik, a dermatology unit of Sanofi, for $425 million, followed shortly by the addition of the Ortho Dermatologics division of Janssen Pharmaceuticals Inc. for $345 million.
 
The Dermik acquisition, announced July 11, gives Valeant several skincare assets, including $18 million of dermatology product inventory as well as a contract manufacturing plant in Laval, Canada. The Laval site, which currently produces approximately 70 formulations and more than 200 presentations of tablets, capsules, non-sterile liquids, ointments and creams for both Sanofi and third parties, reported $240 million in revenues last year.
 
Dermik's product portfolio includes leading therapeutic and aesthetic dermatology brands such as Benzaclin for the treatment of acne, Carac for the treatment of keratoses and Sculptra, a facial injectable for the correction of facial wrinkles and folds. These products have a strong presence in the U.S. and Canadian dermatology markets, Valeant said in a press release announcing the deal.
 
The Dermik transaction is subject to certain closing adjustments and regulatory approvals, including the termination or expiration of the Hart-Scott-Rodino waiting period, and is expected to be accretive in 2011.
 
For its part, Sanofi says selling Dermik, which comprised only a small portion of its overall business, will allow the pharma "to further concentrate on its growth platforms."
 
"Our manufacturing operations in Laval and our field operations teams will benefit from Valeant's stronger presence in dermatology," stated Christopher Viehbacher, CEO of Sanofi.
 
The Janssen acquisition, announced July 15, includes prescription brands Retin-A Micro, Ertaczo and Reova. Total revenue for the product portfolio was approximately $150 million in 2010. The Ortho Dermatologics transaction is subject to certain closing conditions and regulatory approvals and is expected to be accretive in 2011.
 
Valeant for the last three years has worked to solidify its position in dermatology through a slew of acquisitions. Beginning in 2008, Valeant enhanced its dermatology portfolio with the additions of Coria Laboratories, Dow Pharmaceutical Sciences Inc. and DermaTech Pty. Ltd. Over the next two years, Valeant acquired Vital Science Corp. and Laboratoire Dr. Renaud, as well as various products from companies in Australia, Brazil and Poland.
 
With these acquisitions, Valeant now has a broad footprint in the dermatology space—one worth about $1 billion in revenues—with both prescription and over-the-counter products for a variety of skin-related conditions, including actinic keratoses; skin cancer; acne; psoriasis; scar and pigmentation reduction; and skin aging.
 
"With the combination of this transaction and other recently announced transactions, Valeant is well on its way to being one of the leading companies in dermatology," stated J. Michael Pearson, Valeant's chairman and CEO, in a news release. "We believe that dermatology remains an attractive therapeutic area for Valeant and we are pleased to able to add another strong franchise to our growing operations."
 
Pearson also told Reuters that he wants to amass the world's biggest skincare business within five years. With a few more strategic acquisitions, this goal may be easily attained given that many big pharma companies are exiting dermatology to focus their pipelines on other specialties.
 
"We're ambitious in many ways," Pearson told the news service. "We just want to be a lot bigger than anyone else."
 
In an interview with Reuters, Stifel Nicolaus analyst Annabel Samimy called Valeant's strategy a sound one, adding, "They're out there buying assets for cash flow and building a broad dermatology presence. The assets that they're buying are not necessarily the ones that require a significant amount of promotion or expense behind them."
 
Valeant's other major specialization is neurology. The company is based in Mississauga, Ontario, and has approximately 3,700 employees worldwide. Following its $3.2 billion merger with Biovail last year, Valeant is now 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 to investors, Pearson said Valeant expects to move outsourced U.S. production of its existing brands to Laval, which should reduce its costs.
 
But is Valeant eyeing other acquisitions?
 
"Obviously, bigger deals get you there quicker, but I think we'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 told investors.
 
Code: E081103

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