Amitriptyline From Picrate Xtal

Valeant Pharmaceuticals (NYSE:VRX) reported its third quarter earnings on Monday morning. In the context of Valeant's ongoing battle for control of Allergan (NYSE:AGN), both companies had suggested investors ought to view the third quarter as a litmus test of the former's acquisition-driven business model (Oct. 30 is the record date for Allergan shareholders who will vote on matters pertaining to the acquisition, including the appointment of a slate of independent directors.) In that context, Valeant's quarter looks pretty convincing.

Financials
Valeant produced adjusted cash earnings of $2.11 a share, beating analysts' consensus estimate of $1.99 a share. Revenue rose by a third to $2.06 billion, in line with Wall Street's expectations.

In order to defend against the charge that the company is over-reliant on acquisitions for growth, Valeant executives highlighted the company's 19% year-on-year growth "same store sales" (businesses that have been owned for at least one year.) Bausch & Lomb, the company's largest acquisition to date, produced 12% organic growth. Furthermore, companywide, volume increases were a bigger driver of growth than price increases.

Crucially, all of these metrics (and a couple of others) met or exceeded the company's own guidance, which ought to provide some reassurance that the goals it is setting for the Allergan acquisition are not far-fetched (nevertheless, if you want to read the contrarian case, you can check out a pre-emptive 30-page presentation Allergan published on Monday morning).

Looking forward
And speaking of guidance, Valeant also raised its fourth quarter adjusted earnings estimate range to $2.45-$2.55 a share, and its 2015 adjusted profit forecast to $10 a share. Analysts' expectations were $2.38 and $9.58 respectively.

Allergan acquisition
Valeant had some grist for the Wall Street information mill: CEO J. Michael Pearson giving the strongest indication yet that a raised bid for Allergan might be in the works, stating "we do have some more dry powder at the appropriate time, when the conditions are right... we are contemplating [Raising Valeant's bid for Allergan] and we may make that decision at any time."

If this quarter was a litmus test, Valeant appears to have scored a win: The stock rose 3.8% on Monday, narrowing the gap between the value of its current cash-and-share offer for Allergan and Allergan's share price. However, I expect Valeant will continue to face pressure to raise its offer; meanwhile, the long-term thesis for the stock requires the company to balance acquisitiveness and purchase discipline. We'll be monitoring this saga as it unfolds to verify that it strikes the right balance.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Valeant Pharmaceuticals. The Motley Fool owns shares of Valeant Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.