Valeant Pharmaceuticals expects its businesses to grow by more than 20 percent this year, execs said during a June 17 investor day in New York City. The figure is high, especially in the current pharma environment, but Wall Street analysts believe the projections are credible, given the specialty pharma's recent track record.

Valeant, with $860.5 million in annual revenues, is making an aggressive effort in emerging markets.

It expects to launch 17 branded generics ophthalmologic products in Mexico alone through 2011, growing sales of its branded generics there from $115 million in 2008 to an expected $225 million in 2011. In Brazil, Valeant expects sales to grow to $90 million in 2011, up from just $23 million in 2007, with 14 new launches expected. There, it plans to invest in the consumer health market, which execs said has sustained growth due to overall wage increases in the population.

Brazil is a market where Valeant has made a particularly aggressive push given that the sales opportunity there is valued at up to $12.2 billion, with 54 percent of sales coming from generics. Valeant bought two companies in two months to expand its presence in the market, including Instituto Terapeutico Delta Ltda and a privately held company, with an undisclosed name, specializing in branded generics and OTC products.

In Brazil, Valeant also expects to launch both a branded generic and a traditional generic version of Viagra in about a year. Launching two versions of the drug offers a way to drive sales from multiple angels and is doable since the bioequivalence studies required for approval can be used for more than one presentation of a drug there, execs said.

"The more we learn, the more secure we feel with management's ability to execute its aggressive plan," Jefferies & Co. analysts said in a June 18 note. "If Valeant's projections are even close to what reality will bear, the stock is dramatically undervalued indeed."

Lazard Capital Markets analyst William Tanner also lauded Valeant's business updates, in particular its growth in emerging markets, including Latin America.

Valeant's Forges Ahead After Restructuring in 2008

Valeant has come a long way to earn positive reviews from investors. A few years back, the company was scattered globally and across pharma segments, with an unclear strategy that was soaking up marketing muscle and profitability. Since J. Michael Pearson took over as chief executive in early 2008, Valeant has undergone a major restructuring, focusing more heavily on dermatology and neurology, areas of traditional strength, divesting the bulk of its European operations, and rebalancing and building its geographic holdings in emerging markets. In addition, it cut back on internal R&D, which was tracking $100 million a year, in favor of strategic partnerships and in-licensing.

It is now profitable across all business lines, executives said. It aims to end 2010 with sales of $1 billion, with plans to more than double that number to $2.5 billion in 2014, through a combination of organic growth and tuck-in acquisitions, Pearson wrote in a letter to shareholders in the company's 2009 annual report.

It also has diversified into branded and commodity generics, proprietary pharmaceuticals, consumer health products, and cosmetics in several high growth markets. About 50 percent of 2009 sales came from specialty pharmaceuticals, with 34 percent from branded generics, and another 15 percent from over-the-counter products.

Overall, product sales were up 34 percent in the first quarter 2010, compared to an increase of 10 percent in the first quarter 2009. Total sales for 2009 were $830.5 million, with roughly 86 percent coming from product sales, the remaining 15 percent from alliances.

Valeant also is gearing up to buffer sales that will be lost when its epilepsy drug Diastat faces generic competition later this year. Diastat brings in revenues of about $70 million, or sl10 percent of total sales.

However, the pharma is still tight on cash, with less than $100 million on hand, although it expects to earn more in milestone payments from GlaxoSmithKline later this year if the anti-epileptic Retigabine /Ezogabine is approved. The drug faces FDA action on August 30. If approved, its U.S. launch will generate a $45 million milestone payment from GSK, which also will pay Valeant another $40 million when the drug launches in Europe. The deal between the two pharmas, signed in 2008, gave Valeant an upfront of $125 million, with the potential to earn a total of $545 million in milestones.

Acquisitions are a significant part of Valeant's growth strategy and it has made several this year. So far, the pharma has sealed four main deals to puff up its U.S. business - the acquisition of Coria Laboratories, Dow Pharmaceutical Sciences, and Aton Pharma.

Valeant acquired Aton Pharma for $318 million in early May to fill out its non-dermatology U.S. business. Aton, which focuses on ophthalmology and orphan drugs, is expected to bring in net sales of $80 million to $100 million this year (Also see "Valeant Pharmaceuticals To Buy Aton For $318 Mil.; Bolsters U.S. Specialty Business" - Pink Sheet, 3 May, 2010.).

"It's probably pretty early to weigh in on how successful that acquisition is going to turn out to be," Tanner cautioned. Valeant purchased the company for nearly three to four times its total sales.

But Jefferies analysts believe that having Aton on the books for a full month has helped Valeant to offset weaknesses in the European market, where pharmas are facing significant near-term pricing pressures due to government reimbursements cuts.

Still, Valeant seems relatively undeterred by government pricing pressures, given that it is only interested in licensing products that can withstand steep hits.

"The cost of goods behave sometimes differently since the currencies, as well as the cost of the manufacturing in each and every respect are growing. We are trying to manage this and of course one of the basic decision factors in buying the dossiers or buying the registration lies in the profitability of the product," said Valeant's European President Mariusz Gajowniczek. "So we are trained to get on board the products with big enough profitability that can stand even some level of deep price erosion."

- Carlene Olsen (c.olsen@elsevier.com)

Valeant's Investor Day Leaves Wall Street Recommending A "Buy" On Shares

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