Company complements are more than skin deep

Valeant acquires Medicis for $2.6 billion

Kelsey Kaustinen
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MONTREAL, Canada—In its ongoing quest for further growth and a bigger stake inthe dermatology market, Valeant Pharmaceuticals International Inc. hasannounced the signing of a definitive agreement with Medicis PharmaceuticalCorp., under which Valeant will acquire all outstanding shares of Medicis'common stock for $44 per share in cash, for an aggregate total of $2.6 billion.

The offer price represented a 39-percent premium to the closing price onMedicis' stock on Aug. 31, the last trading day before news of the deal wasmade public, and a 31-percent premium to the company's three-month averagetrading price. Both companies' boards of directors have approved thetransaction, which is expected to close in the first half of 2013.

"The acquisition of Medicis represents a significant next step in our journeyto become the leader in dermatology by strengthening Valeant's presence inacne, actinic keratosis, aesthetic injectables and antivirals, among others,"J. Michael Pearson, chairman and CEO of Valeant, said in a press release."Medicis' highly complementary portfolio of leading branded products andpromising pipeline is a solid strategic fit, and we look forward to leveragingMedicis' well-known and respected name in dermatology to drive long-termgrowth."

Scottsdale, Ariz.-based Medicis specializes in dermatological and aestheticproducts, and it has seen fairly steady growth for the past few years. Medicisreported revenues of approximately $721.1 million in 2011, with a gross profitmargin of roughly 90.7 percent and a non-GAAP cash flow from continuingoperations of approximately $218 million. The company'sportfolio includes prescription brands such as Solodyn, Restylane, Perlane,Ziana, Dysport and Zyclara, for issues such as acne, wrinkles/frown lines andactinic keratoses.

"Our board of directors believes this compelling all-cash transactiondemonstrates the value our employees have created and the strength of our brandin the specialty pharmaceutical market," Jonah Shacknai, chairman and CEO ofMedicis, said in a press release. "We look forward to combining our portfolioof products with Valeant, and we are confident that the combined portfoliounder the Medicis name will be well positioned to capitalize on meaningfulopportunities in the growing dermatology and aesthetics markets."

The acquisition is subject to customary closing conditions, including approvalfrom Medicis' shareholders. Once complete, Valeant expects the transaction tobe immediately accretive to its cash earnings per share and to result in costsynergies at an annual rate of at least $225 million within six months of theclose of the deal. The combined company's proforma net revenue in terms of dermatology and aesthetics businesses for2012 is expected to total more than $1.7 billion in the United States.

Laurie Little, vice president of investor relations at Valeant, says thecompany started having conversations with Medicis regarding a possibleacquisition more than a year ago, but the talks did not progress until thisfall. She adds that the companies' portfolios are very complementary.

"Where we have a big emphasis, we have quite a few products on thetopical side for acne, they have the oral side … again, I think it's just thatthe product portfolios are very complementary in nature, so they make a lot ofgood sense to put together," says Little.

The acquisition was a good fit for Valeant, she adds, as "here in the U.S., wehave a very strong dermatology focus … we've been pretty vocal about being oneof the largest dermatology players."

Little says the combined dermatology operations will belocated in Scottsdale, with a press release noting that the company willoperate under the name Medicis, a division of Valeant. Dermatology research anddevelopment operations will be located in Laval, Quebec; Scottsdale; andPetaluma, Calif., with corporate supports functions located primarily in NewJersey.

"Obviously, I think that's a pretty clear message that we definitely valuetheir expertise and experience in the marketplace and obviously want to retainthat," says Little of the plans to keep dermatology operations in Arizona."Their sales force is highly rated by dermatologists, so all those hopefullyare great signs that we definitely want some Medicis folks to remain."

In an analyst note, Zacks Equity Research reportedthat they have "a positive take on Valeant's acquisition of Medicis. We believethat Medicis' products will complement Valeant's portfolio … Post-acquisition,we believe that Valeant will be in a position to leverage Medicis' strongpresence in the dermatology market to drive growth in the long run."

Kelsey Kaustinen

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