Valeant Pharmaceuticals to shift U.S. production to Quebec over next three years

MONTREAL - Valeant Pharmaceuticals announced plans Friday to shift its U.S. production to Quebec as it continued a shopping spree to become the world's largest dermatological treatment company.

"We like Quebec a lot because of the skill set of the workforce, there's a lot of pharmaceutical companies that you can draw the experience and we have a great team there," chairman and CEO Michael Pearson said in an interview.

Earlier, the company said it has agreed to buy Ortho Dermatologics division of Janssen Pharmaceuticals Inc. for $345 million. The company had $150 million of sales last year.

The acquisition will give it ownership of prescription brands like acne treatment Retin-A Micro and Renova, a wrinkle reduction drug.

Although its global headquarters are near Toronto, Valeant's Canadian operations are run from the Montreal area, where it has one of its two manufacturing facilities for pills. The other is in Steinbach, Man.

On Monday, the company signed a separate agreement to purchase skin care treatment company Dermik, a unit of multinational pharmaceutical firm Sanofi, for $425 million.

The Sanofi transaction comes with an administrative office and a 27,000 square metre state-of-the-art plant in Laval employing 200 workers that makes various topical creams.

The plant will continue to make 70 formulations for Dermik, 200 prescriptions for Sanofi and outsourced contracts for three years. Over the next two to three years, Valeant expects to move outsourced U.S. production of its existing brands to this location.

"Now that we have a topical plant our plan would be to move that manufacturing into our own facility. It will be lower cost for us and will be good obviously for our Canadian operations."

Pearson said the company doesn't yet know how many manufacturing jobs will be created on top of the hiring of a Canadian sales force.

With the acquisitions, Valeant's Canadian workforce will grow by more than 300 to 1,500.

Valeant (TSX:VRX) has been bulking up even before it abandoned its $5.7 billion bid in May for U.S. drugmaker Cephalon.

In addition to Ortho Dermatologics and Dermik, Valeant agreed to pay international specialty pharmaceutical company Meda $176 million in cash plus upfront royalty payments for the rights in the U.S., Canada and Mexico for two dermatological creams.

It also agreed to acquire U.S. and Canadian rights to anti-cold sore drug Zovirax from GlaxoSmithKline for $300 million.

The four deals will add $700 million in annual revenues and $325 million in pre-tax operating earnings (EBITDA). The deals are done through a Barbados subsidiary.

Valeant (TSX:VRX) plans to fund the transactions by using its $200-million credit facilities and $1 billion worth of debt.

Douglas Miehm of RBC Capital Markets said Valeant's revenues are quickly building thanks to acquisitions with relatively low multiples.

"While the growth profiles for the drugs recently acquired are low, the aggregate earnings accretion associated with the addition of these assets and the other dermatological deals will likely be significant as these products should slip easily into the bag of the current (and likely expanded) sales force," he wrote in a report.

Not included in the total is the $500 million cash and share acquisition set to close in the coming months of Lithuania-based drug company AB Sanitas.

The acquisition will make Valeant the largest dermatological player in Central Europe.

But Pearson has loftier expectations.

"We'd like to be an $8 billion company in five years," he said.

That would mean doubling its dermatological revenues to about $2 billion.

"Obviously, bigger deals gets you there quicker but I think we've made an awful lot of progress in the last couple of years going from a $20-million business and three years later we're at $1 billion," Pearson said during a conference call.

The company plans to divide its products into divisions that cater to the medical and aesthetic uses.

It may eventually sell the aesthetics business if it determines it can't develop the critical mass to create sufficient shareholder value. That will also depend on its ability to find a buyer willing to pay the right price.

Valeant, formerly known as Biovail, is a multinational specialty pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products, primarily in the areas of neurology, dermatology and branded generics.

Valeant's shares closed at $52.49, up $1.89 or 3.7 per cent in Friday trading on the Toronto Stock Exchange.

Note to readers: The story corrects a previous version that stated the Laval plant and administrative office were part of the Ortho Dermatologics transaction