ISTA Ista Pharmaceuticals, Inc. (MM)

Valeant Pharmaceuticals International, Inc. (VRX) recently announced that it has entered into an agreement to acquire certain branded generic assets from Mexican pharmaceutical company, Atlantis Pharma. As per the terms of the agreement, Valeant Pharma will pay approximately $71 million for the assets. The deal is expected to close in second quarter, subject to fulfillment of certain regulatory conditions.

The acquired assets generated net revenues of $26 million in 2011. In 2012, the revenues are expected to show double-digit growth. We expect the deal to be accretive for Valeant Pharma.

We note that Valeant Pharma is on an acquisition spree to expand its business. Just last week, Valeant Pharma purchased US-based, privately owned specialty pharmaceutical company, Pedinol Pharmacal, Inc.

In March 2012, Valeant Pharma inked a deal to purchase Russian specialty pharmaceutical company Natur Produkt. During the same month, Valeant Pharma signed a couple of more deals. The company inked a deal to acquire certain branded generic assets from an Austrian pharmaceutical company, Gerot Lannach. Furthermore, Valeant Pharma bought a 19.9% stake in a Brazilian biotech company, Pele Nova Biotecnologia S.A.

In February 2012, Valeant Pharma announced its intent to acquire Eyetech, Inc., a private eye care company. The Eyetech offer came on the heels of Valeant’s failure to acquire another eye care company, California-based ISTA Pharmaceuticals (ISTA) in January 2012.

We remind investors that in 2012, Valeant Pharma had kicked off its acquisition spree with Brazilian sports nutrition and food supplements company Probiotica Laboratorios Ltd.

Though the source of funds for the Atlantis Pharma deal were not disclosed, it is possible that the cash balance of $164 million at the end of December 31, 2011, enabled the company to fund the acquisition. In past the company has funded several acquisition through its cash balance.

Our Recommendation

We currently have a Neutral long-term recommendation on Valeant Pharma. The stock carries a Zacks #2 Rank (Buy rating) in the short run.

 
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