One year ago, Canada’s biggest public biotech company, Biovail Corp., was absorbed in a merger with California-based Valeant Pharmaceuticals International Inc. Most of Biovail’s executives were squeezed out, leaving the new entity in the hands of Valeant’s chief executive officer, Michael Pearson.
Mr. Pearson has continued Valeant’s long acquisition streak, recently locking up a deal to buy Edmonton-based Afexa Life Science Inc., maker of the popular cold remedy Cold-FX.
Biovail founder Eugene Melnyk predicted a bleak future for Valeant after the merger. Do you ever speak to him?
No. I had one short conversation with him after the deal went through, but that was more around one of the litigation matters, which we have now resolved. I wish him well, but [he’s]no longer part of our company.
In terms of his prediction, I guess time will tell. The stock market thought the deal made sense. If you look back to where both companies’ shares were trading prior to [the merger] it has been very good [for shareholders]
Has Valeant been transformed the way you expected it would be, in the year since the Biovail merger?
I’m not sure “transformed” would be the word I would use. The strategy we are continuing to implement is quite similar the old Valeant strategy, prior to doing the merger with Biovail. The integration has gone extremely well, from the vantage point of melding the two management teams, and working through the differences we had in terms of philosophies and strategies. We are now really operating as a single company, and everyone is aligned.
Is Valeant still really a Canadian company?
We believe we are. That’s where our corporate headquarters is [in Mississauga] Most of our board meetings are in Canada, and a lot of the management meetings are in Canada. We spend a lot of time with Canadian investors. [But]we are a decentralized company. They guy who runs Europe, lives in Europe. In Latin America they live in Latin America. The U.S. people live in the U.S., the Canadians live in Canada. But where we conduct our formal business is in Canada.
If we are successful, we will hopefully be one of the strongest pharmaceutical companies in the world. It is good for the country to have strong companies [outside]oil, gas and the banks – segments where the country has always had very strong players. I don’t think there are a lot of pharmaceutical companies that meet that criteria.
Where do you work from?
I live in New Jersey, and I spend literally 80 per cent of my time travelling. This week I was in Brazil and Poland. Next week I am going to Canada. When Valeant was headquartered in California I lived in New Jersey, too. That was the agreement [so that]we could get our kids through high school.
But you are a Canadian, right?
I was born in London, Ont. and I grew up in Canada. My father worked for Bell Canada. He helped design the phone lines in some of the small towns. My parents still have a cottage in Muskoka, and my wife and I own property in Mont Tremblant, so we spend many of our vacations in Canada.
What is your company’s acquisition strategy?
Our strategy is based on acquiring smaller companies [with]products [that] have a lot more potential, usually because the companies don’t have the distribution that we have. Afexa is a good example. We think we can do a better job in Canada, just because of our increased scale, than Afexa can do alone with its products. But we can also take its current products and, some of its pipeline products, and begin to sell those in the U.S., in Australia, in Europe, in Latin America. We can do things with Afexa’s products that it just can’t. That’s typical of the type of acquisition that we would make in other countries too.
How are you different from the large multinational pharmaceutical companies?
We don’t spend nearly the same percentage of sales in research and development as most pharmaceutical companies. We don’t have a lot of big research projects [on]speculative drugs. [And]there are certain markets that we’re not going to get into. We are not going to get into oncology, which is a big focus of all these big guys. We’re also not interested in]the geographies they are all focused on – China, India and Japan, and Western Europe.
We try to avoid products that have a lot of intellectual property and “patent cliffs.” We look for products that have indefinite life.
Your stock has taken a hit recently, after a dramatic run-up following the Biovail merger. Any particular reason?
We’ve taken a major hit. Part of it is the market, obviously, but we have performed significantly more poorly than the market.
I think there are a couple of concerns with our company. One is that our organic growth rate slowed in the second quarter. Second, there is a belief that we are highly dependent on our U.S. operations to drive our profitability. And I think that people are very focused on the Biovail tail products that are declining [in sales] [There has]always been a bit of a lingering concern [about]companies that have a strategy than involves a lot of acquisitions. There are probably more failures in incorporating a “roll-up” strategy than successes. The key will be our execution.