Valeant Pharma to Buy Eyetech

Canadian pharmaceuticals company Valeant Pharmaceuticals International, Inc. (VRX - Snapshot Report) recently announced that it has entered into a definitive agreement to acquire private eye care company, Eyetech, Inc., signaling management’s increasing interest to enter into the ophthalmic space. The acquisition will add Eyetech’s drug Macugen to Valeant Pharma’s ophthalmic portfolio.

Macugen is marketed in the US for the treatment of wet age-related macular degeneration (AMD) by Eyetech. However, Eyetech has a partnership pharma giant Pfizer, Inc. (PFE - Analyst Report) to market the drug outside the US. The acquisition is expected to boost Valeant Pharma’s earnings immediately following closure.

Valeant Pharma did not clearly mention the purchase price of the transaction. Management, however, mentioned that in addition to an undisclosed upfront payment, Valeant Pharma will make future milestone payments which will equal to less than two times sales of Macugen.

The Eyetech offer comes on the heels of the failure to acquire another eye-care company, California-based ISTA Pharmaceuticals (ISTA) in January 2012. Despite some botched deals Valeant Pharma made a number of acquisitions in 2011. It added PharmaSwiss and Sanitas in Europe, Ortho, a dermatology unit of pharma giant Johnson & Johnson (JNJ - Analyst Report), Dermik, the dermatology unit of Sanofi (SNY - Analyst Report) in the US, iNova in Australia, and Afexa Life Sciences, Inc. in Canada.

The acquisitions are expected to help Valeant Pharma achieve its aim of becoming a top 15 pharmaceutical company by the end of 2013. In 2012 Valeant Pharma flagged off its acquisition spree with the purchase of Brazilian sports nutrition and food supplements company Probiotica Laboratorios Ltd. in February.

Our Recommendation

We currently have a Neutral long-term recommendation on Valeant Pharma. The stock carries a Zacks #1 Rank (Strong Buy rating) in the short run.

Valeant Pharma, as it stands today, was formed following the merger of Biovail and Valeant in September 2010. We believe the combined Biovail/Valeant entity is a unique company as it has a global reach (including exposure to important emerging markets), a diversified revenue base, a favorable tax structure and limited patent exposure. Moreover, accretive acquisitions add to the company’s investment thesis.