by Erica Thinesen
To expand a product portfolio, most pharmaceutical and biotech companies develop new products or acquire the products of other companies. Valeant Pharmaceuticals (VRX) has once again expanded its portfolio by purchasing specific products and other assets from Atlantis Pharma, a Mexican generic drug manufacturer. The company purchased these assets for about $71 million. Mostly anti-inflammatory, gastro, and analgesic medications, these products earned about $26 million in sales for 2011 and may double by the end of this year, according to recent estimates.
Finding the right companies and products to acquire, manufacture, and then sell takes time and a lot of research. Last year, the company tried to expand its portfolio into Mexico and other countries in Latin America, but due to high asset prices could not justify spending that much money at the time. Now, with prices going down, Valeant decided the time was right to buy these assets and make a bigger name for itself within the region. Valeant already owns a manufacturing plant, which it now runs as a result of the acquisition of two small pharmaceutical companies in Brazil. As this market continues to grow, the company hopes to become a much needed presence throughout the region.
Over the years, Valeant has acquired companies in Australia, Russia, the U.S., and in its native Canada. The company also has an extensive portfolio of drug treatments that it developed in various laboratory and manufacturing plants throughout the world. In addition to selling generic versions of over-the-counter medications for migraines, skin care, anti-fungal, vitamins, pain relief, and other wellness drugs, the company also developed Wellbutrin XL, a drug treatment used for depression, and Cesamet, used to treat nausea in patients undergoing chemotherapy.
Expanding into new territories has also helped Valeant build a solid reputation and brand over the years. With this latest acquisition, the company can expand further into Latin America and sell a variety of prescription and over-the-counter medications and drug treatments. The deal with Atlantis Pharma should be finalized by the second earnings quarter. Also, since the company already has a large manufacturing plant in the region, making and distributing various drug treatments should not be much of a financial burden. Depending on the needs of patients and physicians, Valeant can set itself up to become the "go-to" drug treatment manufacturer throughout Latin America.
Investors should rest easy knowing that they have put their faith and their money in a stock like Valeant. The company continues to surprise and delight with its strategic acquisitions of both small and large companies. Investors should also be thrilled that the company spends so much time researching different companies to find those that will provide the most return on investment. Valeant continues to build a solid portfolio of products that people need, not only when sick, but for everyday use as well. This makes Valeant different from other pharmaceutical companies, having a mix of drug treatments for diseases and conditions like depression, central nervous system and hyperkinetic movement disorders, and medications for non-life threatening conditions like acne.
In addition to expanding its portfolio, the company also strategically expands its exposure throughout the world. By acquiring companies in different regions, the company can build a brand in each region, which should increase overall sales. This is another reason why Valeant continues to outperform other stocks. For those looking for a long-term, safe investment, Valeant comes as close to perfect as one could expect. It is through careful planning that the company remains successful and should remain so for a very long time. With a stock like Valeant in an investment portfolio, investors can engage in a few risky investments in other names because they can always fall back on Valeant if they take a loss.
However, even though Valeant wins many of its acquisition bids, sometimes it fails. Earlier this year, the company lost its bid for Ista Pharmaceuticals (ISTA). Instead, Ista accepted a bid from Bausch & Lomb for $500 million. Valeant offered $327 million for the company. Ista manufactures eye medications such as Istalol, used to treat intraocular pressure, and Bromday, used for problems associated with cataract removal. This acquisition would have given Valeant yet another industry in which to build a brand. Bausch & Lomb, an American company based in Rochester, N.Y., manufactures contact lens and other eye care products.
And even though Valeant is not the largest generic drug manufacturer in the world, this does not mean it should not be a competitive player. Watson (WPI), a manufacturer of generic medications, recently won a bid to acquire a smaller generic medication manufacturer, Actavis. So Valeant needs to remain competitive by maintaining its ability to manufacture generic drug treatments quickly and sell to patients with increasing needs for these types of medications. Luckily, Watson's main competitors include Teva (TEVA), one of the largest generic drug manufacturers in the world. But Valeant could provide some extra competition as it continues to grow and expand.
When investing in a company that acquires other companies as part of its expansion strategy, it is important to look at the products the acquired companies manufacture to see if the acquisition is worth it in the long run. Spectrum (SPPI), for example, recently acquired Allos Therapeutics (ALTH), a company that manufactures Fotolyn, a blood cancer medication. Even though this may seem like a good deal on the surface, as Spectrum manufactures its own blood cancer medication as well, Fotolyn yielded $50 million in sales last year, up from $35 million in 2010. Only time will tell if this was a smart move on Spectrum's part or not.
Valeant should remain the cornerstone of any smart investor's portfolio. Even though the company spends a lot to acquire other companies, it definitely has a plan and an outlook for the future. This is very important as investing in a company without a plan moving forward will likely result in lower-than-expected profits and disappointing dips in investment portfolios.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.