Pat McKeough responds to many requests from members of his Inner Circle for specific stock picks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

Last week we had a question from an Inner Circle members about one of the rare pharmaceutical stocks in Canada. Valeant Pharmaceuticals was purchased in 2010 by Biovail, then Canada’s largest pharmaceutical firm, and the new company adopted the Valeant name. The company has an aggressive policy of growing by acquisition—it made over a dozen in 2012 alone—and Pat examines several of its recent acquisitions and assesses the overall risks and rewards of this growth strategy.

Q: Can you tell me your opinion on Valeant Pharmaceuticals?

A: Valeant Pharmaceuticals (symbol VRX on Toronto; www.valeant.com) is a drug maker that focuses on dermatology, generics and neurology in the U.S., Canada, Latin America, Europe and Southeast Asia.

On September 28, 2010, Biovail Corporation purchased Montreal-based Valeant Pharmaceuticals International. The new company took on the Valeant name.
Valeant continues to grow by acquisition. In 2011, it bought Edmonton-based Afex Life Sciences, maker of the over-the-counter cold and flu remedy Cold-FX.

In late 2012, it added Medicis Pharmaceuticals for $2.6 billion. Medicis is a global leader in dermatology products, including the largest acne brand, and facial aesthetics, such as dermal fillers to reduce wrinkles.

Following acquisition of eye-care products firm, Valeant agrees to purchase U.S. skin-care firm

Valeant made more than a dozen other acquisitions in 2012, including iNova, which sells and distributes prescription and over-the-counter products in Australia, New Zealand, Southeast Asia and South Africa.

It also acquired Dermik, a unit of major drug maker Sanofi in the U.S. and Canada that makes and sells therapeutic and aesthetic dermatology products.

In August 2013, Valeant completed the $8.7-billion purchase of Bausch + Lomb, a maker of eye-care products, including contact lenses, surgical instruments and drugs.

Valeant has just agreed to buy Solta Medical (symbol SLTM on Nasdaq), a maker of medical devices for dermatology and skin enhancement, for $250 million. Solta’s systems include Thermage CPT, which uses radiofrequency energy for skin tightening; Fraxel, for dermatological procedures; Clear + Brilliant, for improving skin texture and preventing signs of aging; and Liposonix, which reduces waist circumference by destroying fat cells.

In the Inner Circle Q&A, Pat looks at the risk of Valeant’s reliance on growth by acquisition and the quality of the firms the company is targeting. He also looks at the company’s earnings forecast for 2014. He concludes with his clear buy-hold-sell advice on this stock.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members

Do you agree that an aging population makes medical and pharmaceutical stocks an attractive buy? What do you look for in stocks like these? Does it matter to you whether there’s a dividend? Have you been pleased with the results you have had with these stocks?