CEPH Cephalon (MM)

Canadian drug maker Valeant Pharmaceuticals International, Inc. (VRX) recently announced that it has raised its purchase offer for another Canadian company Afexa Life Sciences Inc. which it offered to buy in August 2011. Valeant Pharma has offered to pay $0.85 for each common share of Afexa, 20% more than the originally offered price of $0.71. The takeover price also outdoes Paladin Labs’ $0.81 per share bid for Afexa. The increased offer is however subject to certain amendments to support agreement.

Afexa markets several consumer brands, the most important of which are Cold-FX and Coldsore FX. Cold-FX is a leading OTC cold and flu medicine which will synergize well with Valeant’s products, dermaglow and CeraVe, in the Canadian OTC franchise.

Of late, Valeant Pharma has been on a buying spree. In mid-August 2011, Valeant Pharma completed the acquisition of Lithuania-based specialty pharmaceuticals company Kaunas, which is expected to boost Valeant Pharma’s European branded generic portfolio.

In July 2011, Valeant Pharma announced acquisitions that would entrench its already strong presence in the dermatology market in the US. Valeant Pharma intends to acquire the assets of Ortho Dermatologics, a dermatology unit of pharma giant Johnson & Johnson (JNJ), for $345 million in cash. Valeant Pharma also announced that it intends to acquire Dermik, a dermatology unit of Sanofi Aventis (SNY), in the US and Canada. Valeant Pharma intends to close both the Dermik and Ortho Dermatologics acquisitions by the end of the year.

Further, in March 2011, Valeant acquired privately owned, Swiss branded generics and OTC pharmaceutical company PharmaSwiss S.A. for 350 million euros. This deal was also directed towards expanding Valeant’s European branded generics business.

Our Recommendation

We have a Neutral recommendation on Valeant Pharmaceuticals. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

Valeant in its current form emerged from the merger of Biovail and Valeant in September 2010.  Overall, we believe the combined Biovail/Valeant entity is a unique company as it offers global reach, a diversified revenue base, a favorable tax structure and limited patent exposure. Moreover, accretive acquisitions add to the company’s investment thesis. Despite the string of recent purchases, the company is however not being able to clinch the big deals. The inability to acquire Cephalon (CEPH) was a disappointment. We presently prefer to remain on the sidelines.

 
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