Valeant is a specialty pharmaceuticals company with a pipeline of new drugs undergoing trials and U.S. Food & Drug Administration (FDA) scrutiny, as well as a large portfolio of existing products already marketed around the world. In effect, the firm straddles the line between a biotech and a consumer goods firm.

Insiders have been persistent in indicating value at Valeant, going back several years. In 2009 alone, nine executives purchased nearly $1.5 million worth of VRX at prices ranging from $16.02 to $26.69. Three in the cluster who purchased nearer the lower price earlier this year averaged up their holdings near the high end of that range in late August and early September. That's a particularly bullish sign in my experience.

Most of the buyers also increased their holdings significantly with their purchases this year, although that bullish insider signal is mitigated by the fact that four of the buyers just became insiders this year. Still, the trades by hands-on executives at Valeant more than meet my threshold of bullish significance.

Still Seeing Value

The positive signals from the corporate office also seem confirmed by well-considered large shareholder ValueAct Holdings. ValueAct, with Peter Kamin as its founding partner, behaves as both a private-equity investor and an activist shareholder. It is known for having longer-term investment horizons with the generally value-oriented investments it gets involved with.

ValueAct (along with related filing entity VA Holdings) has been an investor in Valeant since at least 2006. And as shares of the company recovered this year from their lows in the mid-teens hit in March, ValueAct has seen fit to increase its holdings by 34%, to 17.8 million shares. This firm's latest purchases were made as VRX approached $25. So although some of the bullish insiders in the executive suite are new faces, this longtime savvy investment firm obviously also still sees value in the shares.

And why not? In the first half of 2009, Valeant was able to increase its revenues by nearly 21% year over year. In its recently release third quarter, the firm's sales increased 31% year over year. Sure, Valeant has made acquisitions that have boosted its top-line comparisons, but organic revenue growth was reportedly 18% last quarter as well.

Valeant has also been able to leverage its increasing sales. Adjusted third-quarter earnings per share (EPS) rose to 58 cents from 19 cents last year. Not to be left out, cash flow been solid too. Adjusted cash flow from operations was a record $65 million in its third quarter, $10 million above cash flow generation in the second quarter. Total adjusted cash flow so far in 2009 is $170 million; it would appear that Valeant is on track to surpass the $200 million goal management set for this year.

Another Boost to Guidance

Management is feeling confident enough in Valeant's operational momentum to increase earnings expectations yet again after doing boosting projections just last quarter. The company has boosted the midpoint of its 2009 EPS guidance by 7.5%, to $2.15. Next year, management expects to "show double-digit growth in both cash EPS and in cash generation from operations." More specific guidance will be forthcoming in the fourth-quarter conference call.

Besides the many quantifiable positives that arose from the third-quarter earnings and conference call, management also offered some qualitative pluses. Valeant, along with its collaboration partner GlaxoSmithKline , recently submitted both a New Drug Application and the Marketing Authorization Application to the FDA for its promising retigabine drug. No sales are expected from this initiative in the near future, but the drug is seen as a revenue driver several years out.

Management also said it continues to review more of the sort of bolt-on acquisitions that it has completed so accretively in recent years. Valeant is particularly interested in increasing its footprint in Canada and Brazil.

So insiders appear to have had good reason for averaging up their holdings this year. And with VRX still trading for less than 15 times expected earnings, I see no reason to take profits in this winner yet.