Company gains an approved program, royalty streams, and a pipeline of products.

Valeant Pharmaceuticals is willing to pay $285 million plus milestones for Dow Pharmaceutical Sciences. The firm says it values Dow’s dermatology focus, which will pad Valeant’s U.S. presence and add significant assets.

Over the last two years, Valeant has undertaken a number of divestitures to concentrate on its North America business and its dermatology franchise. The company, which used to have a larger neurology than dermatology program, in August licensed part of its neurology clinical pipeline to GlaxoSmithKline for $125 million and $545 million in milestones. To fortify its dermatology franchise and R&D, Valeant scooped up Coria Labs for $95 million and DermaTech for $12.6 million.

Under the terms of the agreement with Dow, Valeant will pay a total net amount of $277 million with the remaining $8 million in cash being retained from current Dow accounts. Valeant will initially tender $250 million, or $242 in net of cash. In the six-month period following closing, Valeant will fund an escrow account of $35 million, which will be subject to indemnification claims from Valeant for a period of 18 months after closing.

Valeant also reports that it will pay future milestones based predominately on the achievement of approval and commercial targets for certain pipeline products.

If the acquisition closes as expected at year end, Valeant will gain an approved treatment and Dow’s royalty streams from out-licensing.  Valeant thus anticipates the transaction will be accretive in 2009. Current annualized revenues for Dow are approximately $45 million, of which approximately $20 million represents royalty payments from products already out-licensed by Dow, according to Valeant.

Dow recently gained FDA approval for Acanya™, a topical prescription medication for mild-to-moderate acne. Valeant expects the treatment to launch early next year. Dow also has products in clinical development for the treatment of rosacea, moderate-to-severe acne, fungal infections, and common warts. Valeant believes that one or more of these will enter a Phase III trial in 2009 with a launch as early as 2012.

Additionally, Valeant will leverage Dow’s topical products services business, which works with external sponsors for the formulation and development of topical therapies.

“This acquisition grows our scale and capabilities in dermatology thus solidifying Valeant’s future as a leading company in the development and commercialization of dermatology medications,” comments J. Michael Pearson, chairman and CEO. “Gordon Dow, the founder of Dow Pharmaceutical Sciences, and his team are highly regarded with innovative formulation and development expertise, exemplified by having worked on ten dermatology approvals from the FDA in the past few years and with projects under way in eight of the top ten dermatology diagnoses. We are excited that they will be joining the Valeant team as we believe the synergies between our newly acquired Coria franchise and Dow’s business will provide sustainable growth for many years to come.”

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