Valeant Pharmaceuticals ($VRX) has snapped up one specialty drugmaker after another as CEO Michael Pearson marches the company toward his goal of $20 billion in annual revenues. In December it closed on the $2.5 billion buyout of dermatology company Medicis Pharmaceutical. But along the way, it also has picked up an impressive debt load to pay for the rapid-fire build-out, raising some eyebrows.
Valeant's debt topped out at $10.1 billion at year-end, and carried nearly half-a-billion dollars in interest charges. Its revenues in 2012 were $3.55 billion up 44% over the prior year. The company has said revenues should hit $4.8 billion this year. While the markets have generally rewarded the company for its expansion, some analysts can't help but wonder whether it has taken on too many IOUs to get there. "Their debt is higher than I would like, and the difficulty they will have is that they are in competition with global acquirers for identical companies," Steve Brozak, president of WBB Securities, tells the Financial Times.
Not to worry, says Pearson, a former McKinsey & Co. healthcare consultant. If carrying costs rise, then maybe Valeant will switch to shorter-term variable rate loans, or maybe equity to execute deals. He also waves off comparisons to other roll-up specialists like Tyco that crashed and burned when financial factors shifted quickly. He said they were not diversified enough and "most didn't truly integrate," he tells the Financial Times.
Pearson often targets companies with overlap where costs can be quickly jettisoned with post-deal plant closings and layoffs. As soon as the Medicis deal closed, Valeant started carrying out Pearson's plan to cut $225 million in costs, with more than 300 layoffs in redundant departments. He also whittled down the company's tax bill last year by making Valeant a Bermuda-based operation, which reduced it corporate rate below 4%.
- read the Financial Times story
Special Report: Valeant Pharmaceuticals/Medicis Pharma - Top Biopharma M&A Deals - 2012