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Salix Bidding War Erupts as Endo Tops Valeant’s Offer

Xconomy Raleigh-Durham — 

[Updated 3/11/15, 6:44 pm. See below.] Salix Pharmaceuticals, which just two weeks ago reached a deal to be acquired by Valeant Pharmaceuticals, now has a better offer from Endo International.

Dublin, Ireland-based Endo (NASDAQ: ENDP) has proposed to Salix (NASDAQ: SLXP) a cash and stock offer that amounts to $175 per share—about 11 percent more than Valeant’s (NYSE: VRX) $158 per share cash offer. In Endo’s proposal, Salix shareholders would own approximately 40 percent of the combined company.

[Paragraph updated to include Valeant comment.] The boards of Salix and Valeant had already approved Valeant’s offer, which values Salix at about $10.3 billion. If Salix spurns the offer of Canada-based Valeant, it would owe a $355 million break-up fee, plus expenses. It does not look like Valeant will budge on price. In a statement, Valeant said: “We are firmly committed to our all-cash agreed transaction, which delivers immediate and certain value to Salix shareholders. The tender offer is scheduled to expire at the end of the day, March 31, 2015, and Valeant expects to be in the position to close the transaction on April 1, 2015.”

Valeant is one of the most acquisitive companies in biopharma. But in a letter sent to Salix chairman Thomas D’Alonzo, and also filed with securities regulators, Endo CEO Rajiv De Silva wrote that Endo is a savvy dealmaker in its own right, and the two companies would be a good fit. Since 2013, De Silva wrote, Endo has completed six deals, helping the company assemble a diverse portfolio of specialty pharmaceutical products and drug candidates.

“Salix has a strong growth profile that is well aligned with Endo’s,” De Silva wrote. “We think that Endo would bring significant management resources to continue to allow Salix to grow while utilizing our experience to help resolve any outstanding matters inhibiting growth.”

For its part, Salix has a portfolio of 22 commercialized gastrointestinal products. The company’s top drug, rifaxamin (Xifaxan), is approved for traveler’s diarrhea and hepatic encephalopathy, a condition in which a damaged liver cannot remove toxins which then reach the brain and cause damage. But Salix is also expecting another potential revenue stream this spring, when the FDA could approve rifaxamin for irritable bowel syndrome with diarrhea. If rifaxamin secures the FDA nod, Salix’s drug would become the first approved treatment for the disorder.

Salix has built its own drug portfolio by being an active acquirer of gastrointestinal products. But the company became an acquisition target last fall following accounting problems rooted in improper reporting of inventory levels for rifaxamin, which led the company to restate its financials dating back nearly two years. Salix CFO Adam Derbyshire resigned in November. Carolyn Logan retired as CEO in January.

Endo still needs approval from its shareholders before it can complete a deal for Salix. But Endo says that it has secured such approval by wide margins for its previous acquisitions, and expects it could close the Salix deal in the second quarter.

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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