Valeant Will Leap Higher On New Acquisition

Apr.18.12 | About: Valeant Pharmaceuticals (VRX)

Valeant Pharmaceuticals (VRX) is a high-priced stock with plenty of value, and I believe it is only going to climb higher in the coming months and years. The price is right around $52 and I believe it is worth every penny. The company owns both prescription and over-the-counter products, and there are several opportunities in its pipeline. With a focus on dermatology, it does not run the risk that many other biotech companies face. However, it is conducting research in the neurology market, so those uncomfortable with a focus on only dermatology have no reason to worry.

The company's OTC product line includes skin and hair care, pain relief, vitamins, topical care, and other items. It includes brands such as CeraVe, Hissyfit, Dermaglow, Ultra, Dermaveen, Nyal, Dr. Renaud, Kinerase, and Dr. LeWinn's. In addition to the company's profitable OTC line, there are also a number of pharmaceutical grade products in the pipeline, including products in Phase II and Phase III trials. These include treatments for psoriasis, acne, and fungal infections.

There are several reasons I believe Valeant is a heavy hitter, and the first is its recent announcement that it will be moving its headquarters from Toronto to Quebec. The goal is to establish a state-of-the-art center for dermatology in the new location. A lofty goal such as this proves the company considers itself stable enough to focus on growth and is looking toward the future. Combined with its overall diversity and not-as-tumultuous focus, Valeant is a great investment.

Valeant scares off some investors because the price is so high, but it is still considered one of the most popular biotech stocks available. Experts often recommend Elan (ELN) or Teva Pharmaceuticals (TEVA) as less expensive alternatives to Valeant, but I'm sticking with Valeant. It is a good bet for diversifying risk in terms of the market, as well as in terms of the products it sells. There are very few companies with both pharmaceutical and OTC products, which is one of the main reasons I would advise getting your hands on Valeant. It is stable and I anticipate it seeing long-term growth.

Valeant also recently announced it is buying the podiatry drug maker Pedinol. According to the press release by Valeant, Pedinol had about $18 million in revenue in 2011 and it said the purchase price was less than 1.5 times its annual sales, or under $27 million. Shares of Valeant Pharmaceuticals rose 86 cents to $53.37 in morning trading following the announcement. Most expect Valeant to continue to rise and possibly soar during the coming year and into 2013.

This is not to say Valeant has never experienced difficulties. In 2010 the company saw a loss of $110 million, but bounced back the following year with a $300 million profit. This was due mainly to its strong pipeline, one of my favorite things about Valeant overall. The bounce back boosted investor confidence and the company is still enjoying the spoils. Investors also recognize that Valeant has a knack for identifying its weak spots and buying smaller companies that will strengthen these holes. The company has also formed a working relationship with GlaxoSmithKline (GSK) to build its reputation and utilize better research standards and professionalism.

Another reason I am a fan of Valeant is because it does not have a great deal of direct competition. There are other biotech companies out there focused on OTC drugs, and there are others focused on dermatology and neurology. However, Valeant is one of the few that combines this research and takes it to such high levels. It is an expensive option, but it is one that I believe is worth the investment since it has shown itself to be a steady earner.

A few of the high-valued stocks in its price range have a completely different product focus. Questcor (QCOR), selling for around $41, and Vertex Pharmaceuticals (NASDAQ:VRTX), going for around $36, are not even close when it comes to product comparisons. Questcor is a biopharmaceutical company with products designed to help patients with serious, difficult-to-treat medical conditions. Its focus is on neurology and nephrology, as well as research efforts for a variety of conditions having significant unmet medical needs. Though the company has two drugs currently on the market, the majority of its focus is on Acthar. The drug is capable of treating multiple sclerosis, infantile spasms, and nephrotic syndrome.

Vertex Pharmaceuticals has two products already on the market, including Kalydco and Incivek. A third medication, Lexiva, which was co-discovered with GlaxoSmithKline, is a protease inhibitor used in the treatment of HIV. Vertex also has eight products in the pipeline, including one drug in Phase II trials and two drugs in Phase I trials for treating hepatitis C; two drugs in Phase II trials for treating cystic fibrosis; one drug in Phase II trials for treating immune-mediated inflammatory disease; one drug in Phase II trials for treating epilepsy; and one drug in Phase I trials for treating influenza.

Both are strong companies and have solid pipelines, but they are working in industries where drug researchers are looking for a "big break" or a cure for a specific disease. The advantage of Valeant, focusing on the dermatological industry, is that it does not need to cure anything. Both its prescription and OTC products are treating conditions, but are also providing improvements overall. Basically, nobody needs to be sick or fighting an illness to use the products developed by Valeant.

Investing in a higher-priced company can feel like a huge risk, but there are definitely some advantages. With higher-priced companies chances are you are getting more security. You are using more money, but there is less risk involved. With low-price companies you invest less, but there is no telling where the company will be in a few months or a year. Valeant is secure and it is making strides to grow. If you are looking for a company that is stable and has a bright future, this would be my pick.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.