Valeant Pharmaceuticals International is banking on people’s willingness to spend money on their looks.
The Aliso Viejo-based drug maker’s made several buys of skin drug companies to build its dermatology business since Chief Executive J. Michael Pearson took over in 2008.
Last year, Valeant’s skin drug deals included a $285 million buy of Dow Pharmaceutical Sciences Inc., a Northern California maker of drugs to treat acne and skin conditions, and a $95 million deal for Fort Worth, Texas-based Coria Laboratories Ltd.
In September, Valeant spent $69 million and issued 162,500 shares of stock for Australia’s Pri-vate Formula Internation-al Holdings Pty Ltd., a maker of products sold without prescriptions. That followed a $12.2 million deal for another Austral-ian company, DermaTech Pty Ltd., last year.
Valeant’s latest skin deal came in October, when it said it was spending $18 million to buy the rights to several skin drugs from a privately held, undisclosed Polish drug maker.
Valeant wants to have more skin drugs to diversify its revenue, said Rajiv De Silva, the company’s chief operating officer of specialty pharmaceuticals.
Dermatology brings prescription drugs covered by insurers as well as products that patients pay for out of their own pockets, De Silva said.
“From our standpoint, given the shifting sands of healthcare reform around the world, hedging by having businesses that actually go outside the traditional prescription business (is) helpful,” he said.
Skin drugs are a growing business for Valeant. In the third quarter, the company’s U.S. dermatology sales rose 59% to $27.2 million from a year earlier.
On its third-quarter earnings call, Pearson said Valeant has a “stretch target” of growing its global dermatology business from $300 million by the end of this year to $500 million in 2010. Those numbers include service revenue, royalties and product sales.
Wall Street seems to approve.
Through acquisitions, Valeant “has built a significant dermatology business, which is well suited for specialty pharma,” said Gary Nachman, an analyst with Boston-based investment bank Leerink Swann LLC in a client note.
But Valeant will have to make “significant new deals” to reach its $500 million sales target in 2010, according to Nachman.
Valeant wants to buy more dermatology companies. But De Silva also said it wasn’t desperate for deals and would evaluate potential buys to see if they have the right price and circumstances.
“All of our deals have been fairly small bites,” he said.
Valeant’s deals brought the company products such as acne gel Acanya and CeraVe, a moisturizer that is sold at stores and recommended by doctors. Those join its existing dermatology drugs, including Efudex, which is used to treat skin lesions related to cancer, and Kinerase, a line of skin care products that are sold in doctor’s offices.
Besides skin drugs, Valeant also makes neurology and antiviral drugs.
The company’s salespeople target 10,000 to 12,000 “high-volume prescriber” dermatologists in the U.S., and it’s looking at selling to more types of doctors, including pediatricians and plastic surgeons, De Silva said.
Valeant faces hurdles with its strategy.
“We are not the only company that’s recognized that dermatology’s an attractive area,” De Silva said. “The dermatologist’s life is not becoming easy either, so they have limited time. Access is an issue, but in our portfolio, we do quite well.”
Valeant has 70 U.S. sales representatives in the Coria unit, while another 20 sell Kinerase, according to De Silva.
Valeant’s skin drug competitors include Galderma SA, a Swiss maker of products such as the Cetaphil skin cleansing line, Irvine’s Allergan Inc., which makes Tazorac and Aczone for acne, Stiefel Laboratories, which was recently bought by Britain’s GlaxoSmithKline PLC, and Dermik, the dermatology unit of France’s Sanofi-Aventis.
Consumer dermatology competitors include a pair of Johnson & Johnson brands: Neutrogena Corp. and Aveeno.
Valeant seeks to run its acquisitions with a light hand.
“The philosophy that Mike Pearson has is that he likes his businesses to be decentralized, as independent as possible,” De Silva said.
Valeant does centralize finance, information technology and certain company policies.
Besides skin care products, Valeant also is building up its dermatology research and development.
Valeant’s Dow Pharmaceutical has a contract service research and development unit that does work for other big dermatology drug makers, De Silva said.
Valeant is “very comfortable” with having Dow’s research and development capability and is not worried about the possibility of its scientists developing a breakout drug for another company, according to De Silva.
“Every now and then, we may lose an opportunity, but that’s life,” he said.
