Zacks Small Cap Institutional Research



|Valeant Pharmaceuticals International, Inc. |(VRX-NYSE) |$78.17* |

Note: This report contains substantially new material. Subsequent report will have changes highlighted.

Reason for Report: 1Q13 Earnings Update

Prev. Ed.: Mar 28, 2013; 4Q12 Earnings (brokers’ material considered till Mar 7)

Brokers’ Recommendations: Positive: 69.2% (9 firms); Neutral: 23.1% (3); Negative: 7.7% (1) Prev. Ed.: 12:4:1

Brokers’ Target Price: $85.93 (↑$12.6 from the last edition; 17 firms) Brokers’ Avg. Expected Return: 9.9%

*Note: Though dated Jun 11, 2013, share price and brokers’ material are as of May 17, 2013.

Note: The tables below (Revenue, Margins, and Earnings per Share) contain material from fewer brokers than in the Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying spreadsheet models.

Portfolio Manager Executive Summary

Valeant Pharmaceuticals International, emerging from the merger of Biovail and the erstwhile Valeant, is a multinational specialty pharmaceutical company engaged in the development, manufacture, and marketing of various pharmaceutical products, particularly in the areas of neurology, dermatology and branded generics. Management aims to expand its business through acquisitions.

Of the firms covering the company, 69.2% conferred positive ratings, 23.1% assigned neutral ratings and 7.7% assigned a negative rating on the stock.

Positive or equivalent outlook (9/13 firms): The bullish firms are encouraged by Valeant’s vast global presence. They believe that although the company’s performance could vary from quarter to quarter, the fundamentals of the existing business remain strong. The firms are positive about the performance of the dermatology segment. The bullish firms are also impressed by Valeant’s recent acquisitions which they believe should contribute to growth in the coming quarters. The firms are upbeat about the company’s expectations of an increase in targeted synergies from the Medicis and Obagi acquisitions.

Neutral or negative or equivalent outlook (4/13 firms): The firms are concerned about Valeant’s performance in emerging markets. Additionally, the firms are skeptical about slow growth in large recent acquisitions.

June 10, 2013

Overview

Valeant Pharmaceuticals International, headquartered in Montreal, Canada, is a multinational specialty pharmaceutical company engaged in development, manufacture, and marketing of various pharmaceutical products, particularly in the areas of neurology, dermatology and branded generics. Valeant’s branded pharmaceutical products are sold in the US, Canada, Australia and New Zealand. The branded generics operations are located in Europe and Latin America. Valeant, in its current form, emerged from the merger of Biovail and Valeant in Sep 2010. In Dec 2012, Valeant acquired Medicis Pharmaceutical Corporation. The deal will not only broaden Valeant’s product portfolio significantly but is also expected to create a global leader in the dermatological field. In May 2013, Valeant entered into a definitive agreement to acquire eye-care company, Bausch + Lomb Holdings Incorporated.This will strengthen Valeant’s ophthalmology portfolio.

For more information on the company, please visit its website at .

According to the firms, the major issues to consider when assessing Valeant are as follows:

|Key Positive Arguments |Key Negative Arguments |

|Valeant has a diversified revenue base and is not dependent on a single |Valeant depends largely on product licensing deals and acquisitions to drive|

|product to drive performance. |growth. |

|Potiga/Trobalt for epilepsy holds immense potential. | |

|The firms are positive on management’s expectations of an increase in | |

|synergies from the recent acquisitions of Obagi and Medicis. | |

Note: The company’s fiscal year coincides with the calendar year.

June 10, 2013

Long-Term Growth

The merger with Biovail Corporation has added drugs such as Wellbutrin XL (depression); Xenazine (chorea associated with Huntington's disease); Zovirax (management of initial genital herpes) and Zovirax Cream (herpes labialis) to Valeant’s product portfolio. While its Specialty Pharmaceuticals business caters to the US and Canadian markets, the Branded Generics segment serves the Latin American and European markets. The Biovail merger is expected to drive synergies.

Dermatology has been an area of strong focus for Valeant. Valeant is looking to grow through deals/acquisitions. Important deals/ acquisitions include the buyout of Zovirax rights from Glaxo, Xerese and Elidel from Meda, the Dermik unit from Sanofi, and Ortho Dermatologics from Johnson & Johnson. Valeant expects US Neuro and other to grow through 2013.

In Dec 2012, Valeant acquired Medicis Pharmaceutical Corporation. The deal will not only broaden Valeant’s product portfolio significantly but is also expected to create a global leader in the dermatological field. The acquisition has added products such as Solodyn, Perlane, Restylane, Ziana, Dysport and Zyclara to Valeant’s portfolio. Medicis’ pipeline is promising as well with Dysport currently launching in Canada and a regulatory application having been filed for luliconazole for athletes’ foot. A regulatory application for MetroGel for vaginal infections will be filed in 1H13.

By the end of 2013, Valeant expects to obtain synergies of more than $300 million from the Medicis acquisition, up from the previous estimate of $275 million. The company also expects to generate synergies from Obagi Medical of $50 million by the end of 2013, up from the earlier estimate of $40 million.

In a move to strengthen its ophthalmology portfolio, Valeant entered into a definitive agreement to acquire eye-care company, Bausch + Lomb Holdings Incorporated in May 2013.This will strengthen Valeant’s ophthalmology portfolio.

Currently, Valeant has a few ophthalmology products in its portfolio, namely, Timoptic, Lacrisert, Macugen and Visudyne. With a history of 160 years, Bausch + Lomb currently has recognized prescription and OTC brands such as Besivance, Lotemax, Ocuvite and PreserVision; and vision care brands such as Biotrue ONEday, PureVision, renu and Boston. The company also has surgical brands such as enVista, Storz, Stellaris and VICTUS under its extensive portfolio. Valeant’s existing ophthalmology business will be integrated into Bausch + Lomb’s businesses and the latter will retain its name and operate as a division of Valeant.

June 10, 2013

Target Price/Valuation

|Rating Distribution |

|Positive |69.2% |

|Neutral |23.1% |

|Negative |7.7% |

|Avg. Target Price | $85.93↑ |

|High |$124.00↑ |

|Low |$61.00 |

|No. of Analysts with Target price/Total |NA |

Recent Events

Valeant Pharma to Buy Bausch+Lomb – May 27, 2013

Valeant entered into a definitive agreement to acquire eye-care company, Bausch + Lomb Holdings Incorporated, for $8.7 billion in cash.

In order to fund the acquisition, Valeant will raise approximately $1.5 - $2.0 billion of new equity. The remaining transaction value will be financed through debt.

Bausch + Lomb was a public company trading on New York Stock Exchange prior to Oct 2007, when an investor group headed by Warburg Pincus led the acquisition of Bausch + Lomb.

Of the total consideration of $8.7 billion, Valeant will use approximately $4.2 billion to repay Bausch + Lomb's outstanding debt while approximately $4.5 billion will be paid to the investor group, headed by Pincus.

With a history of 160 years, Bausch + Lomb currently has recognized prescription and OTC brands such as Besivance, Lotemax, Ocuvite and PreserVision; and vision care brands such as Biotrue ONEday, PureVision, renu and Boston. The company also has surgical brands such as enVista, Storz, Stellaris and VICTUS under its extensive portfolio.

Bausch + Lomb currently projects revenues of approximately $3.3 billion in 2013. The transaction is expected to close by the third quarter of 2013 subject to regulatory approvals. The acquisition is expected to generate annual cost savings of at least $800 million by the end of 2014 and be immediately accretive to Valeant’s bottom line on a cash basis.

Hence, Valeant’s existing ophthalmology business will be integrated into Bausch + Lomb’s businesses and the latter will retain its name and operate as a division of Valeant. Valeant currently estimates revenues of more than $3.5 billion in 2013 for this division.

The acquisition should also enable Valeant to penetrate into the growing eye health market fueled by an aging patient population, an increased rate of diabetes, and increasing demand from the emerging markets.

Valeant Misses Earnings and Revenue Estimate in 1Q13 – May 2, 2013

Valeant Pharmaceuticals’ first quarter 2013 earnings of $1.27 (excluding special items but including stock-based compensation expense) were short of the Zacks Consensus Estimate by a penny but were up from the year-ago earnings of 1.08 per share.

Revenues for the quarter were $1.07 billion, up 25% from the year-ago period. The year-over-year improvement in revenues was primarily attributable to higher product sales. However, revenues missed the Zacks Consensus Estimate of $1.08 billion.

Quarterly Highlights

Product sales at Valeant amounted to $1.04 billion during the first quarter of 2013, up 38% year over year. Strong sales in the US Promoted (previously US Dermatology) and Emerging Markets segments contributed to the increase.

US Promoted product sales increased 91% to $479 million fueled by solid growth in key brands such as Acanya, CeraVe, Arestin, Dysport, Restylane, Perlane and AcneFree. Organic growth (same store sales) was approximately 6%. Product sales from the emerging markets grew 27% year over year.

On a pro forma basis, (excluding the impact of foreign exchange) total revenues grew 25% from the year-ago quarter.

Research & development (R&D) expenses climbed 8.1% to $23.8 million.

Selling, general & administrative (SG&A) expenses for the first quarter of 2013 increased 36.4% to $241.9 million due to the integration of Medicis operations.

In Dec 2012, Valeant acquired the entire outstanding common stock of erstwhile Medicis Pharmaceutical Corporation for approximately $2.6 billion.

Guidance Updated

Valeant updated its guidance for 2013. Valeant continues to expect revenues between $4.4 billion and $4.8 billion in 2013, up 30% from 2012, excluding potential acquisitions apart from the Natur Produkt acquisition (which was completed in Feb 2013). Nevertheless, earnings per share on a cash basis are now projected around $5.55 –$ 5.85, up from the earlier projection of $5.45 – $5.75. The guidance includes a loss of $0.35 to $0.40 from the launch of Mylan’s generic version of Valeant’s Zovirax ointment in Apr 2013.

Valeant expects to obtain synergies of more than $300 million by the end of 2013 from the Medicis acquisition, up from the previous estimate of $275 million. The company recently completed the acquisition of Obagi Medical which is expected to generate synergies of $50 million by the end of 2013.

Revenue

Revenues for 1Q13 were $1.07 billion, up 25% y/y. The increase in revenues was primarily attributable to higher product sales. The Zacks Digest average total revenues for 1Q13 were in line with the company’s report.

Product sales amounted to $1.04 billion in 1Q13, up 38.4% y/y. Strong sales in the US Promoted and Emerging Markets segments led to the y/y increase.

Outlook: In 2013, total revenue is expected to be in the range of $4.4–$4.8 billion, reflecting a 30% increase over 2012.

|Revenue |1Q12A |

|($ in million) | |

|Copy Editor |Pushpanjali Banerjee |

|Content Editor |Ekta Bagri |

|Lead Analyst |Ekta Bagri |

|QCA |Arpita Dutt |

|Last Updated By |Isha Shah |

|Reason for Update |1Q13 |

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June 10, 2013

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