Sector News

Valeant is kicking tires at Salix, but a rival Shire bid could quash the idea

February 4, 2015
Life sciences
After keeping quiet on the M&A front since its failed hostile bid for Allergan ($AGN), serial acquirer Valeant ($VRX) last week announced its leading bid for the bankrupt Dendreon’s ($DNDN) assets. Now, it may be ready to strike again.
Valeant is talking with its advisers about a potential bid for North Carolina’s Salix Pharmaceuticals ($SLXP), which is struggling to get its act together after an inventory snafu overstated sales and sent its CFO packing, Bloomberg reports. The way Sterne Agee analyst Shibani Malhotra sees it, Salix could cost the Canadian pharma upward of $170 per share.
Salix’s lead product, Xifaxan, up for an IBS indication from the FDA, has “significant growth potential,” Malhotra figures. Add the potential synergy for buyers focused on GI meds, or a tax advantage like Valeant’s, and that’s worth “at least a 20% premium to our standalone $145 valuation,” she wrote in a note to investors.
But Valeant isn’t the only potential buyer to fit that bill. Dublin drugmaker Shire ($SHPG) is reportedly interested, too, and it has plenty of cash to go around after agreeing to buy NPS Pharmaceuticals last month. Salix’s product lineup includes treatments for ulcerative colitis and traveler’s diarrhea in addition to Xifaxan–a GI roster Shire CEO Flemming Ornskov wouldn’t mind getting his hands on.
After all, Shire has its own GI corps revving up to add NPS’ short bowel syndrome-fighter Gattex to its line-up. That GI business is coming off “probably the best year we’ve ever had,” Ornskov said at last month’s JP Morgan Healthcare Conference. And with money to spend, Ornskov has also said Shire is better off doing acquisitions “in areas where you know the field,” calling GI “home turf for us.”
A rival bidder could hurt the chances for Valeant, which prides itself on disciplined bidding. It pursued Allergan for months, only to cede the deal to Actavis ($ACT) when CEO Brent Saunders offered $66 billion, a price Valeant couldn’t bear. And Valeant is wary of paying too much for Salix, too–a factor that could cost it the deal, Bloomberg’s sources say.
Some of Salix’s investors would be happy to see the company change hands no matter who the buyer is. They’ve been agitating for a sale since before those nasty inventory issues surfaced–issues the pharma last week said prompted it to restate its financials for the last 7 quarters.
Those problems have already reportedly scuttled one potential transaction with Allergan, which at one time looked to swallow Salix to escape Valeant’s clutches. And one of Salix’s own acquisition attempts bit the dust last year, when new, stricter U.S. rules for tax inversions forced it to pull the plug on its deal for the Irish division of Italy’s Cosmo Pharmaceuticals.
By Carly Helfand

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