Valeant Pharmaceuticals International Inc. (VRX)’s $2.6 billion agreement to buy skin-care company Medicis (MRX) Pharmaceutical Corp. recharges an acquisition plan that stumbled with last year’s failed bid for Cephalon Inc.
Valeant, Canada’s largest publicly traded drugmaker, said yesterday it will pay $44 in cash for each share of Scottsdale, Arizona-based Medicis, 39 percent more than the Aug. 31 closing price. Valeant rose 15 percent to $58.78 in New York trading, its biggest gain since January 2011 and highest close on record.
The deal would be the largest for Valeant since it was created in a 2010 merger of Canada’s Biovail Corp. and a U.S. predecessor. Medicis -- maker of acne drug Solodyn, psoriasis cream Vanos and the injectable cosmetic gel Restylane -- would boost Valeant’s sales from skin treatments by about 75 percent to $1.7 billion, according a Goldman Sachs & Co. estimate.
“It further cements their dermatology presence,” David Amsellem, an analyst with Piper Jaffray & Co. in New York, said in a telephone interview. “It makes the company a legitimate player in medical aesthetics.”
The company also will be helped by the tight relationship Medicis’s sales force has with doctors, Amsellem said. Michael Pearson, chief executive officer of Montreal-based Valeant, said that sales team was part of the reason for the acquisition.
“One of the reasons we were attracted to Medicis is they are such a great sales and marketing company and we will hope to navigate the integration so that we retain that capability,” Pearson told analysts on a conference call today.
Valeant has made about 50 acquisitions of companies and assets since Pearson took over as chairman and CEO in 2008, said Jared Levy, a company spokesman. The strategy has been to mix larger deals with smaller ones, Pearson said on a May conference call, focusing on ophthalmology and dermatology.
Dermatology is “a business the CEO has talked about in the past that they’ve found very attractive with lower government threat to pay and generic competition,” Neil Maruoka, an analyst with Canaccord in Toronto, said in a phone interview.
Investors are interested in the stock because of the aggressive acquisition strategy, Maruoka said. Valeant shares have doubled since the Biovail merger in September 2010, outpacing the 23 percent increase in the Standard & Poor’s 500 Index and a 10 percent gain in the NYSE Composite Index.
Medicis, which fell 5.1 percent this year through August, rose 38 percent today to $43.65.
The transaction will close in the first half of 2013, Valeant said in a statement yesterday. The company still has “ample flexibility to pursue small tuck-in acquisitions as they arise,” Pearson said on the conference call.
An attempt to expand last year with a $5.7 billion offer for drugmaker Cephalon failed after Petach Tikva, Israel-based Teva Pharmaceutical Industries Ltd. (TEVA) topped the offer with a more than $6 billion overture.
Valeant’s most recent successful purchase of a company was OraPharma Inc., a maker of specialty oral health products, in June for $312 million, from private-equity company Water Street Healthcare Partners.
The agreement yesterday values Medicis at about 12 times the most recent 12 months’ earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg, compared with the median 14 times Ebitda in eight other recent pharmaceuticals takeovers. Medicis had about $721 million in revenue last year, while Valeant reported $2.5 billion in sales, according to data compiled by Bloomberg.
Dermatology products will make up about $730 million in estimated 2012 revenue for Medicis, Gregory Waterman, an analyst for Goldman Sachs, said in a note to clients today. Medicis’ gross profit margin was 20 percentage points higher than Valeant in 2011 at 91 percent, according to data compiled by Bloomberg.
The acquisition is subject to conditions that include approval by Medicis stockholders and expiration of any applicable regulatory waiting period. Valeant said it expects the acquisition, once completed, to immediately add to cash earnings per share.
JPMorgan Chase & Co. (JPM) advised Valeant, and Deutsche Bank AG and Roberts Mitani LLC were Medicis’s financial advisers. Valeant used the law firms Sullivan & Cromwell LLP and Skadden Arps, and Medicis used Weil Gotshal & Manges LLP and Latham & Watkins LLP.