Valeant aims to crack top drugmaker ranks through deals

Rod Nickel

By Rod Nickel

(Reuters) - Valeant Pharmaceuticals International Inc , Canada's largest listed drugmaker, wants to become one of the world's top five pharmaceutical companies by market capitalization by the end of 2016, largely through acquisitions, it said on Tuesday.

Shares of Valeant, which bought contact lens maker Bausch + Lomb Holdings Inc for $8.7 billion in August, were up 10.1 percent at C$132.08 in midday trading in Toronto. The stock more than doubled in 2013 on the strength of the company's acquisitions.

"Unless you aim high, you don't achieve high," Chief Executive Michael Pearson said on a conference call with analysts and investors. "How we get there, we can't say at this time."

Montreal-based Valeant would need a market capitalization of about $150 billion to crack the top five, Pearson said. It is now valued at about $38.4 billion and sits within the top 15 pharmaceutical companies by that measure.

"The image that comes to my mind is Babe Ruth coming to the plate, pointing to the bleachers and then hitting the ball there," said Glenn Greenberg, managing director of Brave Warrior Advisors, which controls 6.6 million Valeant shares. "It shows a certain level of self-confidence."

Greenberg said he was encouraged by Valeant's focus on specific types of buys and that the company was not afraid to pass up potential acquisitions if they do not meet its criteria.

"This guy (Pearson) has created a huge amount of value in the last five years," he said.

Valeant is pursuing a so-called merger of equals as well as smaller deals, but will look this year to pull off one acquisition of similar size to the Bausch purchase, Pearson said.

Even as it pursues acquisitions, the company said it would aim this year to reduce its debt ratio to below four times earnings before interest, taxes, depreciation and amortization from around 4.5 times currently.

Valeant officials said their acquisition interests were focused on the Middle East, Asian and Russian markets and include medical devices. In the past, the company has bought companies that sell products directly to consumers.

"We're not going to change our strategy," Pearson said. "We're not going to do anything short term that we'll regret doing a year or two later."

Also on Tuesday, Valeant forecast increases of about 40 percent this year in revenue and "cash earnings," which exclude certain items such as acquisition and restructuring costs.

The company said it expected cash earnings of $8.25 to $8.75 per share, while analysts on average were estimating $8.71, according to Thomson Reuters I/B/E/S.

Valeant expects earnings to be weighted toward the back half of the year, with higher expenses earlier because of product launches, the timing of realizing savings from the Bausch deal, and other factors.

Valeant forecast 2014 revenue of $8.2 billion to $8.6 billion. Analysts are expecting $8.279 billion.

(Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Lisa Von Ahn)