April 19, 2010 - Valeant Pharmaceuticals International (VRX-NYSE) a specialty pharmaceutical company, engages in the development, manufacture, and marketing of a range of pharmaceutical products. It primarily offers specialty pharmaceutical and over-the-counter (OTC) products in the areas of dermatology and neurology therapeutic classes.

It also offers Diastat/Diastat AcuDial, which are gel formulations of diazepam; Cesamet, a synthetic cannabinoid for the management of nausea and vomiting associated with cancer chemotherapy; Mestinon, an oral lyactive cholinesterase inhibitor used in the treatment of myastheniagravis; Migranal, a nasal spray formulation for the treatment of acute migraine headaches; and Librax, which is used as adjunctive therapy in the treatment of peptic ulcer and irritable bowel syndrome.

In addition, the company provides branded generic products in antibiotics, antifungal medications, and diabetic therapies in Europe; and antibacterials, vitamin deficiency, and dermatology in Latin America. Valeant Pharmaceuticals has a license and collaboration agreement with Glaxo Group Limited to develop and commercialize retigabine, a neuronal potassium channel opener for the treatment of adult epilepsy patients with refractory partial onset seizures.

Here's the scoop on VRX: it's a turnaround story. In 2007, revenues hit $872.2 million and earnings were 55 cents a share. In 2008, things went south. Revenues dropped to $657 million while earnings deflated to 19 cents a share. But that was then. In 2009, both jumped dramatically. Total sales went to $830 million and earnings bounced to $2.21. This year, according to 7 analysts, the consensus estimate for revenues is $973.51 million and earnings to hit $2.62. Next year, they see $1.09 billion for sales and $3.01 for earnings. For the next 5 years, analysts see average annual growth for earnings of 19.7%, for sales 5.5%.

The power behind the surge is coming from the Specialty Pharmaceuticals business. It saw revenues increase 33% while total sales were up by 26%. And the emphasis from management is more growth. The company acquired a Brazilian generics firm for $28 million in the first quarter of this year. The Brazilian manafacturer specializes in dermatology and had sales last year of $19 million in the U.S.. Furthermore to expand capacity, VRX entered into an agreement which will close before June 30 to buy a 165,000 square foot manufacturing plant.

The company likes its own stock. The board authorized a total of $1 billion to spend on buying it. The original purchases were authorized in October of 2008 for $500 million. In late March of this year, the board added another $500 million to the purpose. The program is scheduled to end by March 2013. To date, the company bought a total of $415 million of common and convertible stock.

This stock hit its recent lows in late 2007 when it traded at $10.40 a share, then rallied most of 2008, only to hit the head winds of early 2009 when the stock touched down to $15.60 a share. Since then, the trajectory has been almost straight up, recently hitting a high of $44.61 on April 6. That's a gain of 186% in a little over a year. It's up over 30% since January.

More numbers: Forward P/E is 14. Price to book is 8.96. Operating margin for the last 12 months was 30.07% while Profit margin was 31.76%. Return on equity is worth repeating: 83% while Return on assets was 12.53%. Total cash is $81.86 million which is $1.05 a share. Total debt is $600.6 million. Market Cap is $3.3 billion. Current ratio is 1.4. Beta on the stock is a mild .58. There are 78.02 million shares outstanding with a Float of 76.96 million. Insiders own 9.88%. Institutions own about 100% of the stock. There is no dividend.

This stock had a great bounce in the last year. But with earnings ramping and a very high Return on equity, there could be more room to run. Investors will want to watch closely how well management does in its efforts to further penetrate the dermatology market. Even if that is less than stellar, expect good things from this stock. And remember, there's less and less of it trading every day as the company continues to buy its own.

- Company Web site: www.valeant.com

- Ted Allrich