Monday, December 23, 2013

2013 M&A of the Year Nominee: Valeant/B&L

It's time for the IN VIVO Blog's Sixth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A of the Year, Alliance of the Year, and Financing of the Year. We'll supply the nominations (about a half dozen in each category throughout over the next week or so) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Valeant Pharmaceuticals -- the seemingly insatiable embodiment of growth-by-acquisition in modern pharmaceutical times -- has been party to more than a dozen significant M&A deals since acquiring Biovail in 2011. Its biggest move in 2013, earning an M&A-of-the-year nod from us, is the $8.7 billion takeover of ophthalmology specialist Bausch & Lomb.

The May 2013 deal was a big win for private equity owners Warburg Pincus. It put some extra shine on the reputation of then-B&L CEO Brent Saunders, who has moved on to Forest to work his Hassanian brand of turnaround-magic in the world of primary care. And it again highlighted ophthalmology -- and B&L's diversified pharma/device/consumer approach to the field -- as an industry hotspot.

But the main reason we've nominated Valeant/B&L for the M&A Roger this year is that it underscores the increased activity on the big deal front of specialty pharma over its supposedly deeper pocketed Big Pharma rivals.  In fact a look at the top biopharma deals by dollar value this year suggests none of the 'big' deals -- the recent exception of BMS selling its stake in its diabetes JV to AZ notwithstanding -- were Big Pharma deals.

Warner Chilcott went to Actavis for $8.1 billion. Shire bought ViroPharma for $3.3 billion. Onyx went to Amgen (OK we're splitting hairs there, but we'll call Amgen a 'big biotech'). The remains of Elan went to Perrigo. Big Pharma --  its stated penchant for bolt-ons be damned -- bolted on very little of substance this year. On the other hand, Spec Pharma has the firepower, as our friends at Ernst & Young reminded us this year. And it is using it.

Valeant in particular has been using it to diversify. At the time of the deal, CEO Michael Pearson said Valeant has made no secret of its interest in durable specialty sectors with low R&D risk such as eye care and dermatology (last year's big buy was derm specialist Medicis, for $2.8 billion). Acquiring B&L will enable Valeant to balance its revenue mix from both a geographic and therapeutic perspective, he added. Post-B&L, about 50% of Valeant revenue stems from the U.S., with Eastern and Central Europe comprising 15%, Western Europe and Japan 13%, and Latin America, Canada, Australia, Southeast Asia and South Africa rounding out sales.

In terms of therapeutic areas, dermatology and aesthetics contributes about 34%, eye health about 32%, neurology and “other” about 12%, and consumer and oral health about 11%, the CEO said. (Consumer businesses are absolutely on Valeant's radar since adding B&L's consumer brands, the company has said more recently.)

So vote Valeant for its personification of specialty pharma's growth ambitions, particularly in comparison to Big Pharma's 'hey everybody let's get small' religion. For the way it represents the shifting firepower available for the big deals (buybacks and dividend hikes aren't free -- and that's where a lot Big Pharma's money has gone over the past few years). And for its kid-in-a-candy-store, shopping-spree approach to building a large, specialist pharma player: think of it as a vote not just for Valeant/B&L, but for Valeant/Solta, Valeant/Obagi, Valeant/Medicis, and all the rest and what's to come.

Artillery photo via flickr/Paul Campy // cc

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