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Valeant Buys QLT's Visudyne

Zacks Equity Research

Valeant Pharmaceuticals International, Inc. (VRX) recently announced that it has acquired QLT Inc.’s (QLTI) Visudyne. To acquire the US rights to Visudyne and the available inventories, Valeant has made an upfront payment of $62.5 million. The company paid another $50 million for the royalty rights to Visudyne’s ex-US sales and will assume the responsibility of supplying Visudyne for ex-US sales.

We note that QLT had an agreement with Novartis AG (NVS) for the commercialization of Visudyne in ex-US territories. Novartis is obligated to pay a royalty of 20% of ex-US sales of Visudyne till 2014 and thereon 16% till 2019.

Under the terms of the agreement, Valeant will make contingent payments of $5 million for the development of QLT's laser program in the US. Valeant has also agreed to contingent payments of up to $15 million for ex-US royalties.

Visudyne is used for treating abnormal growth of leaky blood vessels in the eye caused by wet age-related macular degeneration. In 2011, Visudyne generated revenues of approximately $21 million in the US and the ex-US royalties recorded by QLT during that timeframe were approximately $14 million. We expect the deal to be accretive for Valeant.

We note that Valeant is on an acquisition spree to expand its business. Earlier this month, the company announced its intention to acquire Medicis Pharmaceutical Corporation (MRX) for $44.00 per share in cash. The deal value is estimated to be approximately $2.6 billion. The transaction is expected to be completed in the first half of 2013.

Our Recommendation

We currently have a Neutral long-term recommendation on Valeant. The stock carries a Zacks #3 Rank (Strong Hold rating) in the short run.

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