According to IMS health report, the global pharmaceutical industry is expected to grow at a CAGR of 4.5% in the next five years to reach $1.20 trillion in 2017, from $963 billion in 2012. To keep pace with the industry’s growth, pharmaceutical companies are spending on research and development in order to develop new drugs, and are pursuing various expansion strategies. These companies are also looking to enhance their presence in the global market through mergers and acquisitions. Acquisitions allow companies to enhance their product portfolio while reducing competition.
Three pharmaceutical companies are implementing these strategies; how will they benefit the companies and thus benefit investors? Let’s take a look.
Acquisitions all the way
Valeant Pharmaceuticals Intl Inc (NYSE:VRX), through its wholly owned Canadian subsidiary, VPII Escrow, has raised senior notes of $3.20 billion, due in 2021 and 2023. It had a public offering of its common stocks for approximately $2.3 billion on June 24, 2013. The funds will help in financing its $8.7 billion acquisition of Bausch & Lomb Holdings. It is a U.S.-based eye-care product company, including contact lenses and lens care products.
Through this acquisition, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) will secure growth opportunities in its eye-care segment, and it will also deepen its footprint in China and other emerging markets. It expects a cost synergy of around $800 million through this deal and a rise in revenue to $8.2 billion by 2014, compared to $3.54 billion in 2012.
Additionally, in December 2012, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) acquired Medicis Pharmaceuticals for $2.6 billion. Medicis primarily focuses on the treatment of dermatological and anesthetic conditions in the U.S. and Canada. Through this acquisition, Valeant became the leader in dermatology and has strengthened its foothold in its skin-care segment.
Medicis has leading branded skin-care and aesthetic products with a strong product pipeline. The U.S. and Canada have contributed 72% to Valeant’s revenue, and with the Medicis acquisition, it has grown 25% year-over-year in first quarter of 2013. Further, its sales in the U.S. are expected to grow at a CAGR of 3.5% to reach $2.4 billion by 2016 from 2013.
Strong specialty segment growth with API acquisition
Hospira, Inc. (NYSE:HSP) entered into an agreement to acquire Orchid Chemical & Pharmaceutical’s penicillin and penems active pharmaceutical ingredients, or API, production and R&D facilities in India for $200 million. This acquisition will help the company integrate penicillin and penems APIs into its product portfolio. With the world-class API facilities of Orchid Chemical, Hospira expects improvements in its antibiotics segment, thus increasing its cost competitiveness. The company expects flat revenue this year and will generate around $4.22 billion by 2014, from $4.09 billion in 2012.