Merz Pharma Group is backing off from buying Obagi Medical Products Inc. (Nasdaq: OMPI) after the $418 million bid from Valeant Pharmaceuticals International Inc. (NYSE: VRX, TSX: VRX), announced April 3, proved too high.

To recap the brief bidding war, Valeant announced on March 20 it would buy Obagi for$360 million, or $19.75 per share in cash. Merz, on April 2, bid $383 million, or $22 per share. The next day, Valeant offered Obagi 10 percent more, making the current price tag of $24 per share, or about $418 million, too tough to beat.

To put the bids in perspective, consider that shares for Long Beach, Calif.-based Obagi closed at $15.39 on March 19, before Valeant's proposal was announced, and now hover just under $24 in midafternoon trading on April 8.

The hard-won target develops aesthetic and therapeutic skin products including Obagi Nu-Derm, Condition & Enhance, Obagi-C Rx, Elastiderm and Clenziderm. The company produced $120 million in revenue for 2012.

The bid for Obagi is all part of Valeant’s strategy of picking up smaller rivals in the dermatology sector. As Mergers & Acquisitions previously reported Valeant’s CEO J. Michael Pearson, who joined the company in 2008, has focused on growth through acquisitions, especially in skin care. "There’s a number of reasons we find dermatology attractive," Laurie Little, vice president of investor relations, tells us. The sector tends to be a "high cash-paying market," and skincare companies usually require smaller sales forces. Large pharmaceutical companies, such as Johnson & Johnson (NYSE: JNJ), also tend to overlook targets in dermatology, preferring bigger medication deals. This makes it easier for Valeant to compete with other strategic buyers, Little added, especially when most targets fall within the middle market.

Among the notable ointments in Valeant's portfolio are Acanya and Atralin, used to treat acne, as well as Zovirax and Xerese, for herpes. With the $2.6 billion acquisition of Medicis Pharmaceutical in September 2012, Valeant now owns anti-aging drugs Dysport and Restylane.

In addition to skincare, Valeant maintains a presence in other product lines, such as cough and cold remedies, exemplified by the $163 million for Russian brand Natur Produkt in February.

For more on the skincare industry, see “Skin Deep: Cosmetics Go Medical.”