Valeant, Bausch And Lomb Synergy In Growing Eye Care Market

Valeant Pharmaceuticals (VRX), a specialty pharmaceutical company, develops, manufactures and markets wide range of products especially in the areas of dermatology, eye care, neurology and branded generics. The company has recently acquired Bausch & Lomb (B&L) for $8.7 billion in cash – $4.5 billion for shares and $4.2 billion for debt. B&L primarily offer variety of ophthalmic products including ophthalmic pharmaceuticals, lenses and eye surgery products. The acquisition is intended to strengthen the eye care business of Valeant.

Advantage Strategic Alliance

B&L have a significant presence globally with wide range of prescription, surgical and consumer products. Strong presence in attractive eye care business will further boost Valeant’s position in the competitive market. B&L’s recently launched products (Lotemax gel, Prolensa, Trulign IOL, Envista IOL, Biotrue Oneday contact lens, Victus) and pipeline will give an upside potential for Valeant in coming years.

Growing Eye Care Market

Global eye care market is mostly led by ophthalmic pharmaceuticals, consumer and surgical products. The growth is largely driven by increasing rate of diabetes and population of aged people. In addition, new products and technology, and rising demand in emerging market for eye care products will drive the market at a CAGR of 5% to reach $48.3 billion by 2017. The market is currently dominated by large players like Alcon, Allergan, J&J’s Vision Care, B&L and Essilor International.

Allergan (AGN) also have a comprehensive range of ophthalmic products used for the treatment of variety of eye disorders including glaucoma, dry eye, and external eye diseases. Glaucoma segment continues to provide stable growth for the company with Alphagan and Lumigan franchise. But, the company is limited to Restasis in dry eye segment and possibly experience sales pressure going forward as the competition is high with large number of competitive products. Additional focus and investment in developing products in tear segment will probably give an advantage in future. In recent quarter, 2013, Allergan’s eye care segment sales increased by 8% to $722.4 million, led by positive growth across all its products. Overall, the company reported sales of $1.6 billion (+11%), adjusted operating income of $525.8 million (+12%) and adjusted EPS of $1.22 (+16%).

Another leading company in ophthalmic segment is Alcon, the eye care division of Novartis (NVS). The division has a broad range of surgical, ophthalmic and vision care products. The company has a leading position in surgical and ophthalmic segment. In recent quarter, 2013, Alcon posted sales of $2.7 billion, up by 6% at constant currency (cc), compared to prior year. This was primarily driven by cataract surgical products (+8% cc), vision care (+4% cc) and pharmaceuticals (+4% cc). Recent launch of refractive cataract suites, Simbrinza for glaucoma and Dailies Total1 in vision care will further enhance Alcon’s ophthalmic pharmaceuticals business in coming periods. Overall, Novartis reported sales of $14.5 billion (+3% cc), core operating income of $3.8 billion (+2% cc) and core EPS of $1.30 (+1% cc).

Market Opportunity For Valeant

Based on current market position and brand recognition of B&L, it is expected that Valeant will generates revenues of $4-$5 billion. Bausch & Lomb’s strong presence in emerging markets is currently around 20-25%. The company’s target on the profitable emerging market will give additional revenue growth in future.

Ophthalmic pharmaceuticals: B&L have strong product portfolio to treat various eye indications including glaucoma, eye allergies, conjunctivitis, dry eye and retinal diseases. It includes both proprietary prescription and OTC products such as Besivance, Lotemax, Ocuvite and PreserVision. Valeant estimates the pharmaceuticals market will grow at CAGR of 5% to reach $28.6 billion by 2017. Assuming B&L’s position, market opportunity for the company will be around $1.5-$1.6 billion by 2015.

Surgical: Global surgical market for eye diseases is expected to be around $9.0 billion by 2017, with increasing demands for surgical technology. Cataract surgery continues to represents majority of the market, driving growth opportunity for intraocular lens (IOL) and later assisted surgery market. B&L expects to generate sales around $650-700 million by 2015 considering the range of products in intraocular lenses and laser system, including enVista, Storz, Stellaris and VICTUS.

Vision Care: Bausch & Lomb have a comprehensive range of products in vision care including Biotrue ONEday, PureVision, renu and Boston. B&L had a leading position in lens care and contact lenses. Valeant estimates the vision care market will have moderate growth of 4% and likely to be around $10.6 billion by 2017. Based on B&L’s competitive positioning, the company will have revenue opportunity around $1.4-$1.5 billion by 2015.

Financials
In recent quarter 2013, Valeant’s revenues were $1.1 billion, up by 41% compared to prior year, resulting from organic growth of product sales. Emerging market reported 26% growth compared to last year. Cash EPS was $1.34, up by 54% over the prior year. The synergy with B&L is anticipated to provide 40% growth in cash EPS in 2013. The company expects to recognize a profit more than $800 million by 2014.

Conclusion
Since 2010, Valeant acquired 15 companies to expand its business. With the addition of B&L, company expects to increase eye heath business by more than 30%, second largest among core businesses. Strong product portfolio including late stage pipeline of B&L will provide growth opportunity for Valeant. In addition, Valeant will strengthen its presence in potential emerging market. Post synergy, Valeant have a competitive position in a growing ophthalmic market.