What it means
With the Medicis acquisition, Valeant becomes the largest player in the dermatology pharmaceutical market. The two companies sell largely complementary product lines.
The addition of Medicis' Dysport injection provides Valeant a product to compete against Botox, sold by rival Allergan
The dermatology market is attractive to Valeant for several reasons. Although annual sales exceed $12 billion, dermatology hasn't attracted many larger pharmaceutical companies. The market is largely insulated from government reimbursement pressures because of the high level of self-pay for dermatology medications.
Valeant expects to achieve more than $225 million per year in cost synergies within six months after the transaction closes. Management points to the acquisitions of Ortho and Dermik as examples of its good track record on this front.
Ortho Dermatologics was purchased from Janssen Pharmaceuticals, and Dermik was bought from Sanofi
Valeant plans to assume additional debt to finance the Medicis deal. However, management plans to reduce its leverage to less than four times pro-forma adjusted EBITDA within 12 months.
Valeant has steadily improved its positioning within the dermatology market. The acquisition of Medicis should enable it to achieve economies of scale while improving market share.
While the Medicis acquisition will catapult Valeant into the No. 1 spot in dermatology, 77% of its 2011 revenue came from other segments. The company has expanded through acquisitions over the past few years; however, it failed to land its biggest deal, Cephalon, after Teva Pharmaceuticals
Expect Valeant to make some more strategic acquisitions, probably outside of dermatology. Valeant CEO Michael Pearson stated that additional smaller deals were likely later this year, particularly in Southeast Asia.
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