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Report: Troubled Salix Emerges as Valeant’s Latest Takeover Target

Xconomy Raleigh-Durham — 

Rocked by accounting problems, Salix Pharmaceuticals (NASDAQ: SLXP is now in the sights of serial acquirer Valeant Pharmaceuticals International (NYSE: VRX), according to a report from Bloomberg News.

Valeant’s exploration of a bid comes a week after news surfaced that the Raleigh, NC-based Salix, a gastrointestinal drug maker, had hired third party advisors to consider a possible sale. Valeant has discussed acquiring Salix with advisors, Bloomberg reported, citing unidentified sources knowledgeable about the matter. Additional sources told Bloomberg that Shire (NASDAQ: SHPG) is also interested in the company.

Valeant has turned itself into a $53 billion juggernaut through near-constant buyouts of drug firms with plenty of products but a minimum of research capabilities, a type of company known as “specialty pharma.” But its most ambitious deal, a proposed takeover of Botox maker Allergan (NYSE: AGN), was rebuffed last year.

Takeover interest in Salix follows accounting discrepancies disclosed last fall that led to the resignation of CFO Adam Derbyshire in November and the retirement of CEO Carolyn Logan last month. Salix had incorrectly stated inventory levels of its top seller, the traveler’s diarrhea drug rifaxamin (Xifaxan), which led the company to cut its earnings forecast.

Following a review by the company’s audit committee, Salix said last week it would restate its financial statements for nearly the last two years. The company said that its 2013 net revenue would be reduced by approximately $20 million. Net income would be reduced by about $11.8 million. For context, in fiscal 2013 Salix reported $933.8 million in net revenue and $143 million in net income.

Salix has not commented on the reports. But the company has said in securities filings that it expects to file its fourth quarter and full year 2014 financial results by March 2. In a research note, Sterne Agee analyst Shibani Malhotra wrote that the “minor restatement” of Salix’s financials removed uncertainty that potential bidders might have felt about Salix.

“We believe the resolution of the accounting-related overhang should ease investor concerns as reliable financials will be available near-term for investors as well as potential acquirers,” Malhotra said.

According to Malhotra, Salix is an attractive acquisition target based on expectations that rifaxamin will win an additional FDA approval as a treatment for irritable bowel syndrome. That drug, and Salix’s nearly two dozen other gastrointestinal products, could find a fit in the drug portfolios of other companies, she said.

Frank Vinluan is editor of Xconomy Raleigh-Durham, based in Research Triangle Park. You can reach him at fvinluan [at] xconomy.com Follow @frankvinluan

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