Is Valeant's $2.6B price for Medicis too high?

Valeant Pharmaceuticals ($VRX) CEO Michael Pearson has a penny-pinching reputation. When it comes to making deals, Pearson drives a hard bargain--or he walks away. But analysts are wondering whether Pearson's shopping prowess fell short in the $2.6 billion deal for Medicis Pharmaceutical.

Earlier this month, Valeant said it would buy the dermatology-and-cosmeceutical drugmaker, banking on Medicis' acne treatments, anti-wrinkle injections and other products to amp up its own burgeoning dermatology business. With Medicis in its grasp, Valeant would be the biggest player in the dermatology business, MarketWatch says, with annual sales of more than $2.5 billion. Right now, Valeant is ranked third in that niche.

But one of Medicis' biggest products may not continue its winning streak, analysts say. Solodyn, an acne drug, generates about 40% of the company's annual sales--and, according to Morgan Stanley, is responsible for 75% of its earnings per share. And Solodyn sales may be weakening.

Prescriptions for the drug fell 44% during the last week of August, MarketWatch says, citing data from IMS Health. And during the first two months of the third quarter, scripts fell 24% compared with the first two months of Q2, Piper Jaffray & Co. figures. The problem may be a new program of "alternate fulfillment" through a mail-order pharmacy, designed to preserve margins, Morgan Stanley noted (as quoted by MarketWatch).

Pearson says he's not worried. "We don't have a concern," he told MarketWatch. Pearson also disputed Morgan Stanley's assessment of the alternative fulfillment program.

- read the MarketWatch piece