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Valeant Pharmaceuticals International’s (VRX - Analyst Report) fourth quarter 2011 earnings of 90 cents per share (excluding special items but including stock-based compensation expense) beat the Zacks Consensus Estimate by 5 cents and the year-ago earnings by 45 cents per share. Full year earnings of $2.73 per share (excluding special items but including stock-based compensation expense) were above the Zacks Consensus Estimate of $2.69 and the year-ago earnings of $1.97 per share.

Revenues for the quarter were $688.5 million, way ahead of the prior-year figure of $514.6 million. The improvement in revenues over the prior-year figure was primarily due to acquisitions completed in 2011 and higher product sales. Organically, (excluding the impact of acquisitions and foreign exchange), revenues grew 10% from the year-ago quarter figure. Full year revenues at $2.46 billion were above the year-ago revenues of $1.18 billion.

Quarterly Highlights

Product sales amounted to $654.2 million (on a reported basis) during the fourth quarter, up 34%. The increase in revenues reflected robust growth in the US Dermatology segment (up 68% to $174.1 million), Canada/Australia segment (up 26% to $101.3 million) and the European branded generic division (up 199% to $144.3 million), partially offset by the US Neurology & other and the Latin American division of branded generics, both of which fell 5% each.

Research & development (R&D) expenses fell to $16.8 million, reflecting a year-over-year decrease of 8.2%. Selling, general & administrative (SG&A) expenses for the fourth quarter increased 16.2% to $148.5 million.

2012 Guidance

Valeant Pharma reiterated the guidance issued on January 6, 2012.

Cash earnings are expected to come in a band of $3.95–$4.20 per share. The 2012 guidance excludes the effects of acquisitions in 2012. The Zacks Consensus Estimate for 2012 earnings is $4.08 per share, within the guidance range provided by the company.

Acquisitions

On February 13, 2012, Valeant Pharma 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.

The Eyetech offer comes on the heels of the failure to acquire another eye-care company, California-based ISTA Pharmaceuticals 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 to its existing lineup.

Our Recommendation

We currently have a Neutral long-term recommendation on Valeant Pharma. The stock carries a Zacks #2 Rank (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 that 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.

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