Valeant Remains On Prowl For Deals After Losing Cephalon
28 July 2011 - 2:20AM
Dow Jones News
Valeant Pharmaceuticals International Inc.'s (VRX) failure to
reel in Cephalon Inc. (CEPH) earlier this year hasn't stopped the
Canadian drug maker from aggressively casting for more
acquisitions.
The Wall Street Journal reported Tuesday Valeant has made a
takeover approach for Swedish specialty drug maker Meda AB
(MEDA-A.SK), a deal that could be worth more than $4 billion if
consummated. Meda said Wednesday its board hasn't received such an
approach. A spokeswoman for Valeant, which licensed North American
rights for two drugs from Meda last month, declined comment.
This month alone, Valeant has agreed to shell out a combined
$770 million for certain dermatology drugs from Johnson &
Johnson (JNJ) and Sanofi-Aventis SA (SNY), including treatments for
acne and fungal infections.
It's all part of Valeant's effort to differentiate itself by
acquiring older drugs for diseases that aren't in the crosshairs of
larger companies like Pfizer Inc. (PFE), and doing it on the
cheap--with a low tax base and minimal spending on marketing and
research and development.
It's a disruptive strategy that has drawn fans among investors
frustrated by a decade of relatively weak output from the research
labs of major drug makers. Valeant shares have doubled so far this
year, on Wednesday rising 0.7% to $56.10.
"It's based on trying to do things differently than large pharma
companies," Valeant Chief Executive J. Michael Pearson said in an
interview before the report of the interest in Meda. "As a smaller
company, the one thing I didn't want to do was compete against
them. Our whole strategy is based on creating value for
shareholders in areas that the large players in the industry aren't
focused on."
Since Pearson joined the company in 2008, Valeant has made about
30 deals to build up a portfolio of drugs mainly for two disease
areas: skin-related and neurological conditions.
In some cases, the sellers no longer actively promote these
drugs because they have either lost patent protection or are
nearing patent expirations, limiting prospects for sales growth,
Pearson said.
Valeant tries to create incremental sales growth--and cost
savings--by having its relatively small sales force promote a
half-dozen such drugs to doctors, rather than two or three products
that many Big Pharma sales reps promote.
"Are we going to get huge growth? Probably not," Pearson said.
"We're not looking for the next Lipitor," he added, referring to
Pfizer's blockbuster cholesterol drug. But he is looking for
products that throw off steady amounts of cash, which can be
returned to shareholders through stock buybacks.
Valeant also has no intention of inventing the next Lipitor in
its R&D labs. The company spent roughly 5% of total sales on
R&D last year, versus more than 20% for some big drug makers.
"That's not one of our core capabilities," Pearson said, a contrast
to companies including Merck & Co. (MRK), which defends its
multibillion-dollar R&D budget as being essential to future
medical advances and company success.
Valeant grabbed the spotlight earlier this year when it made an
unsolicited, $5.7 billion bid for Cephalon, considered by many
observers to be a low-ball offer. Pearson vowed to sell off much of
Cephalon's R&D pipeline and other parts of the business that
didn't fit Valeant's strategy.
Cephalon ultimately spurned Valeant in favor of a more generous,
$6.8 billion bid from Teva Pharmaceutical Industries Ltd. (TEVA),
but Valeant--and its stock price--took the loss in stride.
The offer signaled to many investors that Valeant was on the
prowl for beaten-down assets, and that it would slash R&D and
marketing expenses at its targets, helping its earnings growth.
"We actually look for companies that have some difficulties we
think we can fix," said Pearson, a veteran of consulting firm
McKinsey & Co. before joining Valeant.
This approach, in turn, has helped prop up the valuations of
other midsized specialty-pharmaceutical companies including Endo
Pharmaceuticals Inc. (ENDP) and Cubist Pharmaceuticals Inc. (CBST).
Investors have speculated they could either become takeover targets
or cut costs in moves closer to Valeant's strategy.
"Time will tell whether our strategy and approach will work,"
Pearson said. "So far it's worked OK."
-By Peter Loftus, Dow Jones Newswires; 215-982-5581;
peter.loftus@dowjones.com
Cephalon (NASDAQ:CEPH)
Historical Stock Chart
From Jun 2024 to Jul 2024
Cephalon (NASDAQ:CEPH)
Historical Stock Chart
From Jul 2023 to Jul 2024