U.S. Markets closed

Valeant Eyes Bausch & Lomb, Sending Shares Soaring 13%

Valeant Pharmaceuticals (VRX) soared 13% to a new high Friday after multiple reports cited sources saying it's near a deal to buy contact lens maker Bausch & Lomb for about $9 billion.

That would be the sort of "merger of equals" that CEO J. Michael Pearson has said he wants. Bausch had about $3 billion in sales last year vs. Valeant's expected $4.6 billion.

The 160-year-old Bausch was taken private by Warburg Pincus in 2007. It was expected to go public again this summer, with a prospectus filed in March.

Bausch's financials since 2010 show solid sales growth and a considerable ramp-up in operating income, but a net loss after interest costs, which is a not-uncommon result of a leveraged buyout.

Valeant has been highly acquisitive the last several years, as it's sought to transform itself from a small specialty drugmaker into a global medical giant. Its biggest buys so far have been $3.3 billion for Biovail in 2010 and $2.6 billion for Medicis in December, but word is it's been hunting for bigger game.

Last month it was rumored to be talking about a $13 billion combination with Actavis (ACT), itself fresh from a transformative merger with Watson Pharmaceuticals, but couldn't agree on price. Earlier in May Actavis sealed a deal with Warner Chilcott (WCRX), another specialty drugmaker.

Valeant now has a diverse portfolio of products, including the antidepressant Wellbutrin XL and other prescription drugs for neurological and cardiovascular ailments, branded generics sold in emerging markets, and consumer products mostly for skin care.

Eye care has not been a big part of its portfolio, but Valeant has been making some small deals. Last year it tried to buy Ista Pharmaceuticals, only to lose out to Bausch itself, then succeeded in acquiring EyeTech for an undisclosed sum. Later in 2012 it forked over $100 million to QLT for Visudyne, a wet age-related macular degeneration treatment.

"Valeant believes ophthalmology is another niche market it can consolidate, similar to the way it built up its dermatology business," wrote Morningstar analyst David Krempa in a note. "Similar to dermatology, the ophthalmology market sees a high cash-pay component, so it faces minimal pricing pressure from governments and managed care.

But, he said competition in this field will be tougher than in dermatology, which many big pharmas have exited. Established players include Allergan (AGN), Johnson & Johnson (JNJ) and Novartis (NVS).