Valeant has been through the interesting restructuring process under the leadership of Mike Pearson, the CEO and Chairman. What is interesting about the Mike is that he was taking a different approach to the pharmaceutical industry. Before heading to pharmaceutical field, he has worked with McKinsey for 23 years. Before Valeant is in about 80 countries, he narrowed it down to less then 15. He divested businesses in areas that werenât making money, including Western Europe and Asia Pacific, and focused on North America, Mexico, Brazil, Central Europe and Australia. Then the company ended up with the branded generics businesses in Polish and Mexican markets, and in the US are the neurology and dermatology businesses. The good thing about the Mike Pearson is that he is quite the rational guy. He kept avoiding the areas where there are a lot of competition and âpick his spotsâ. So that he doesnât have to compete against a bunch of very smart and outstanding people.
Mike is the type of guy who doesnât like to spend a lot of money into R&D, into things which hasnât been proven yet. Rather he prefers to leverage the strength of Valeant by partnering with businesses that already have pipeline assets which can be value added. He laid out the strategy for Valeant to buy proven products that are mature. Valeant for him is the best if can using the scale of distribution in the countries that it already have the advantages.
Whenever big pharmaceuticals company is mentioned, investors often think âbout the large R&D expenses, up to billions and billions of dollars, but a lot of new products have failed in stage 1,2,3 or even finished products but failed in the launch. Sequoiaâs Rory Friday has shared that the average cost of bring a drug to market is around $1.6 - $1.8 billion. And the expense on R&D takes up to 15-20% of revenue. And no single drug was large in revenue, but if there are enough drugs in the niche market, it would be very profitable altogether. Goldfarb of the same value fund has said the aggregate return on investment of all R&D for the pharmaceutical is around 7.5%. So with Mike, he thought that if he buys businesses he can cut R&D using the existing products, and reduce SG&A by synergizing the sales force. He has grown Valeant from the little drug marker in Canada into the stock market favourite by more than 20 acquisitions for $1.8 billions since he was the chief in charge in 2008.
Beginning of this year, the target was PharmaSwiss, operated in 19 Central and East European countries, as well as Greece and Israel. It reported the revenue of 180 million euros in 2010, and the growth of 20% annually for the last 05 years. Mike has commented on the acquisitions: âThis acquisition of PharmaSwiss solidifies our position as a leading pharmaceutical company in Central and Eastern Europeâ. And Pavel Mirovsky, the CEO of PharmaSwiss , would stay on with the combined company has said: âValeant Europeâs strong presence in Poland, the regionâs largest market, fills an important gap, and should contribute to transaction synergies.â
Several months ago, Pearson has made the bid of $5.7 million for Cephalon (CEPH, Financial) based in Pennsylvania, the maker of sleep and cancer drugs. According to Pearson, Cephalon spent aroud 16% of its $2.8 billion 2010 revenue on R&D, and the company should restructured itself as the company having the loss from its top-selling drug to generic competition next year if it didnât have the quick replacement. However, the deal was not going through as Cephalon rejected the offer as it significantly undervalued the company.
To expand more into the European branded generics product portfolio with dermatology and hospital injectable compounds, Valeant has acquired the Lithuanian drug market Sanitas in the cash deal at 314 million euros, the company having 390 products sold in nine countries with revenue expected to be more than 100 million euros in 2011. Pearson got excited about the acquisition: "With 80 percent of the Sanitas portfolio consisting of non-reimbursed products with limited exposure to government pricing pressures, Valeant will be in a key position to continue our expansion into Central and Eastern Europeâ
And most recently, Valeant has announced the cash offer for Afexa Life Sciences Inc. (TSX:FXA, Financial) for C$76 million with the following comments of Mike Pearson: "Afexa's strong franchise of consumer brands, including COLD-FXÂŽ, Canada's leading over the counter cold and flu treatment, will be a solid addition to our developing OTC product portfolio in Canada. Afexa's product line, combined with our portfolio from VitalScience, including dermaglowÂŽ, and our recent Canadian launch of CeraVe, will provide the critical mass we need in the OTC market and should provide Valeant Canada with another platform for growth."
The strategy direction of Valeant seems to be very smart move in terms of cutting the unnecessary items, focusing on the certainty and profitability as well as reducing operating expenses by a lot of synergies. And the stock market has recognized it and it has reflected in the performance. From 2008, the stock price fluctuated $16-$20/share, and Mike Pearson has become the CEO in Feb 2008, making the restructuring in the business, the stock has shot up to $65 in Sept 2010, now staying around $43.
Mike is the type of guy who doesnât like to spend a lot of money into R&D, into things which hasnât been proven yet. Rather he prefers to leverage the strength of Valeant by partnering with businesses that already have pipeline assets which can be value added. He laid out the strategy for Valeant to buy proven products that are mature. Valeant for him is the best if can using the scale of distribution in the countries that it already have the advantages.
Whenever big pharmaceuticals company is mentioned, investors often think âbout the large R&D expenses, up to billions and billions of dollars, but a lot of new products have failed in stage 1,2,3 or even finished products but failed in the launch. Sequoiaâs Rory Friday has shared that the average cost of bring a drug to market is around $1.6 - $1.8 billion. And the expense on R&D takes up to 15-20% of revenue. And no single drug was large in revenue, but if there are enough drugs in the niche market, it would be very profitable altogether. Goldfarb of the same value fund has said the aggregate return on investment of all R&D for the pharmaceutical is around 7.5%. So with Mike, he thought that if he buys businesses he can cut R&D using the existing products, and reduce SG&A by synergizing the sales force. He has grown Valeant from the little drug marker in Canada into the stock market favourite by more than 20 acquisitions for $1.8 billions since he was the chief in charge in 2008.
Beginning of this year, the target was PharmaSwiss, operated in 19 Central and East European countries, as well as Greece and Israel. It reported the revenue of 180 million euros in 2010, and the growth of 20% annually for the last 05 years. Mike has commented on the acquisitions: âThis acquisition of PharmaSwiss solidifies our position as a leading pharmaceutical company in Central and Eastern Europeâ. And Pavel Mirovsky, the CEO of PharmaSwiss , would stay on with the combined company has said: âValeant Europeâs strong presence in Poland, the regionâs largest market, fills an important gap, and should contribute to transaction synergies.â
Several months ago, Pearson has made the bid of $5.7 million for Cephalon (CEPH, Financial) based in Pennsylvania, the maker of sleep and cancer drugs. According to Pearson, Cephalon spent aroud 16% of its $2.8 billion 2010 revenue on R&D, and the company should restructured itself as the company having the loss from its top-selling drug to generic competition next year if it didnât have the quick replacement. However, the deal was not going through as Cephalon rejected the offer as it significantly undervalued the company.
To expand more into the European branded generics product portfolio with dermatology and hospital injectable compounds, Valeant has acquired the Lithuanian drug market Sanitas in the cash deal at 314 million euros, the company having 390 products sold in nine countries with revenue expected to be more than 100 million euros in 2011. Pearson got excited about the acquisition: "With 80 percent of the Sanitas portfolio consisting of non-reimbursed products with limited exposure to government pricing pressures, Valeant will be in a key position to continue our expansion into Central and Eastern Europeâ
And most recently, Valeant has announced the cash offer for Afexa Life Sciences Inc. (TSX:FXA, Financial) for C$76 million with the following comments of Mike Pearson: "Afexa's strong franchise of consumer brands, including COLD-FXÂŽ, Canada's leading over the counter cold and flu treatment, will be a solid addition to our developing OTC product portfolio in Canada. Afexa's product line, combined with our portfolio from VitalScience, including dermaglowÂŽ, and our recent Canadian launch of CeraVe, will provide the critical mass we need in the OTC market and should provide Valeant Canada with another platform for growth."
The strategy direction of Valeant seems to be very smart move in terms of cutting the unnecessary items, focusing on the certainty and profitability as well as reducing operating expenses by a lot of synergies. And the stock market has recognized it and it has reflected in the performance. From 2008, the stock price fluctuated $16-$20/share, and Mike Pearson has become the CEO in Feb 2008, making the restructuring in the business, the stock has shot up to $65 in Sept 2010, now staying around $43.
