This Company is Set for Newer Heights in the Eye-Care Sector

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Valeant Pharmaceuticals (NYSE: VRX) has been on an acquisition spree. Its latest purchase is Bausch + Lomb in an all-cash deal worth $8.7 billion. The stock of VRX has been rising over the past year and this takeover will increase it further.

Involved Parties

Valeant Pharmaceuticals International is the largest publicly traded Canadian drug maker. Headquartered in Montreal, Quebec, this multinational pharmaceutical company specializes in dermatological and neurological treatments that include prescription, non-prescription, and generic drugs.

The U.S. is its largest market, and its manufacturing sites are spread across Canada, Poland, Brazil, and Mexico. Its strategy is to develop, acquire, and commercialize new products through strategic partnerships and acquisitions of products and companies.

Bausch + Lomb is owned by an investor group led by Warburg Pincus and is best known for its contact lenses, lens care solutions, ophthalmic surgical devices, and eye drugs. The company was set to go public in 2013, but agreed to be acquired by Valeant.

The Acquisition

This is an all cash deal valued at $8.7 billion, and will be completed in the third quarter of 2013. Under the terms of the agreement, unanimously approved by the Board of Directors of both companies, Warburg Pincus will receive $4.5 billion. The other $4.2 billion will settle the outstanding debt of Bausch + Lomb.

Finance for the acquisition will be raised through debt and the issue of new equity worth $1.5 to $2 billion. Valeant’s existing ophthalmology business will be integrated with Bausch + Lomb, which will retain their name as a unit of Valeant.


Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) is Israel’s top drug company and the global leader in the makers of generic medicines. The company makes generic antibiotics, heart drugs, anti-depressants, etc. and branded pharmaceuticals for Parkinson’s and multiple sclerosis. Generic drugs are cheaper variants of patent-expired-medicines.

H Lundbeck A/S focuses on drugs that treat central nervous system disorders such as Parkinson’s, Alzheimer’s, depression, etc. The company spends around 20% of its revenue on research and development.

Teva’s market cap of $32.5 billion, puts it ahead of Valeant’s MV of $25.9 billion. H Lundbeck is more narrowly focused with a market cap of $3.7 billion only. The net income of Valeant is -$130 million, probably due to its acquisitions, while the corresponding figures for Teva and H Lundbeck are $1.7 billion and $1.1 billion, respectively.

Increased competition and a decline in launch opportunities has created short-term hurdles for Teva, but its long-term prospects look promising. H Lundbeck and Teva will only be slightly affected by the acquisition because the deal relates to eye care. Novartis (NYSE: NVS) is the main player in the eye care sector and will feel increased competition.  Novartis is a giant around the world with $58 billion in annual sales.  It is surprising that they didn't bid for Bausch + Lomb, as there would have been many synergies.  Novartis has over $6 billion in cash, so they certainly could afford it.  However, Novartis has been growing earnings on their own and the market is liking it.  The stock price is up 38% in the 52 weeks.


Valeant will now be a global leader in an eye care market that is set to expand under great demand from emerging markets, an aging population, and increased incidence of diabetes. The deal will add to the earnings-per-share (EPS) of Valeant, save $800 million in annual costs until the end of 2014, and add to its product geographical range.  

Over 50 acquisitions since 2008 have expanded Valeant’s patent exposure and refocused it on attractive pharmaceutical markets. All this will have beneficial effects on Valeant’s stock price, and new equity worth $1.5 to $2 billion will be issued. Purchase of new stock is likely to be profitable for investors at this point.


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