Valeant continues its quest to conquer by acquisition

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Since 2008, Valeant Pharmaceuticals has acquired 75 companies. Its latest target? Botox-maker Allergan Inc.

In its quest to become one of the five biggest pharmaceutical firms in the world, Valeant Pharmaceuticals International Inc. is focusing on a surprisingly small area: the face. The Laval, Quebec-headquartered company has been making acquisitions at a furious pace over the past few years, but its broadened product lineup is still geared toward dermatology, eye care, oral health and cosmetic treatments–lubricating skin, clearing vision, whitening teeth and erasing pimples. Valeant made an offer – together with Pershing Square Capital Management CEO Bill Ackman – in April for Botox-maker Allergan Inc., in a stock-and-cash deal worth about $48-billion. Soon, its offerings could smooth out wrinkles, too.

This strategy resembles that of several large food-and-beverage companies, with the likes of PepsiCo and Starbucks busily expanding their offerings to try and grab a bigger share of their customers' stomachs. But Valeant's approach is hardly an imitation: It has become a standout for the way in which it targets and absorbs acquisitions – about 75 of them since 2008, including Bausch + Lomb and 11 others last year. Mike Pearson, Valeant's chief executive, prefers what he calls durable health care products – established brand names that don't rely on patents, many of which can be bought over-the-counter; 85 per cent of Valeant's products fit this description, giving the company smoother, more predictable sales.

Valeant also takes a different approach to the research and development of new treatments: The firm doesn't do much of it, based on the view that it's an inefficient use of cash. Rather, Valeant spends less than 3 per cent of its revenues on R&D, versus an average of 16 per cent among the biggest industry players. By gutting R&D departments following acquisitions and dealing with duplications in areas such as sales and administration, Valeant can squeeze out savings – an estimated $2.7-billion in the case of Allergan – and make the deals contribute to earnings relatively fast.

Of course, it also helps when you are dealing with just one body part – and the face is one of the most lucrative parts going.

The Deals

2014
Allergan Inc.
Botox
$48-billion

2013
Bausch + Lomb Holdings Inc.
Biotrue contact lens solution
$8.7-billion

2012
Obagi Medical Products Inc.
Neotensil for reducing under-eye bags and wrinkles
$418-million

2012
Medicis Pharmaceutical Corp.
Solodyn oral antibiotic for pimples
$2.6-billion

2012
OraPharma Inc.
EZ White tooth whitening system
$312-million

2011
iNova Pharmaceuticals
DermaDrate skin moisturizer
$701-million