Market Overview

Valeant Pharmaceuticals to Acquire OraPharma

Valeant Pharmaceuticals (NYSE: VRX), the Canadian drug maker, announced Friday that it has agreed to buy oral health company OraPharma from Water Street Healthcare Partners, a private equity firm.

The deal is expected to close later in June, and total consideration will be $426 million.

Michael Pearson, Valeant's CEO, said, "We are excited to enter a new attractive market segment with an already established sales infrastructure focused entirely on the dental community. We believe that this market segment has similar characteristics to the dermatology, podiatry and ophthalmology markets and should offer us the opportunity to cross-sell some of our current products, most notably our new topical prescription cold sore medication, Xerese."

Valeant has so far been focused on the neurology and dermatology therapeutic areas, while OraPharma is a leader in oral health pharmaceuticals. Its Arestin product is the leading locally administered antibiotic used by dentists for procedures that treat periodontitis.

However, this deal will give Valeant a new growth platform, allowing it to diversify into the dental industry.

Of interest to Valeant would be the fact that OraPharma generates annual net revenue of roughly $95 million through its specialty sales force, and the business is growing at a high single digit rate.

Valeant said that it hopes the deal will add to its earning in 2012, as it reported a net loss of $12.9 million in the first quarter, plus a $20 million decline in product sales. Valeant ended the first quarter with total revenue of $856.1 million, which is up 52% from $565 million the previous year.

That amount includes $66.3 million of alliance and royalty revenue from generic versions of the Benzaclin and Efudex drugs, through the company's acquisition of the U.S. assets of Sanofi dermatology unit Dermik.

Recently, Valeant Pharmaceuticals has been busy buying companies. The OraPharma deal follows the acquisitions of Swiss Herbal Remedies which generated revenue of $27.3 million in 2011.

In May, Valeant announced plans to acquire assets from University Medical Pharmaceuticals, including AcneFree, for $64 million plus undisclosed Milestone payments. In April, Valeant announced a $71 million deal to purchase undisclosed assets from Mexican pharmaceuticals company Atlantis Pharma.

Valeant Pharmaceuticals is trading at roughly $45 on Friday, down about 1.7%.

Follow me @BCallwood.

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