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Valeant’s discussions to sell Salix to Takeda have broken down

December 1, 2016
Life sciences

Valeant Pharmaceuticals International Inc.’s talks to sell a stomach-drug business to Japan’s Takeda Pharmaceutical Co. for roughly $10 billion have broken down amid last-minute disagreements over price and other matters, according to people familiar with the matter.

Though the talks could still be revived, Valeant is now focused on building the business, Salix Pharmaceuticals, rather than selling it, the people said.

The development represents another setback for a company that has been plagued by an accounting scandal, the departure of its top executives and a plummeting share price. As of Tuesday’s close, Valeant shares had fallen 80% in the past year.

Valeant is now moving ahead with plans to build the sales force for Salix’s crown jewel, the irritable-bowel drug Xifaxan. Valeant announced the “significant” expansion in a news release Tuesday.

Valeant’s shares, which had already been sagging after Tuesday’s announcement, fell further after The Wall Street Journal reported on the breakdown and were recently off more than 7%, at $15.92.

One of the 11th-hour disputes was over the sum of an agreement, which Takeda sought to reduce, according to people familiar with the matter.

Takeda, a big Japanese drugmaker that has prioritized stomach drugs, had approached the beleaguered Canadian pharmaceutical company about purchasing Salix and the sides been near a deal that would have included $8.5 billion in cash plus royalty payments, the Journal had reported earlier in November.

That report sent Valeant’s stock up 34%, but the gains have evaporated in recent weeks after a disappointing third quarter and another cut to its earnings guidance.

Valeant is in the process of trying to sell several assets in its portfolio, which had been built largely through acquisitions, to pay down roughly $30 billion in debt. It is also exploring selling a surgical-equipment business that could fetch $2.5 billion, the Journal has reported.

Valeant has said it hadn’t intended to sell Salix, which it only bought last year and considers a core asset, but had to listen when a prospective bidder seemed willing to pay a good price.

Some inside Valeant have argued against selling the unit because it is a potential source of significant sales growth, one of the people said.

A sale would help Valeant pay off roughly $12 billion in bank debt, which is the most pressing concern for investors who fear a collapse in the company’s earnings could put it at risk. And a purchase would help Takeda boost its stomach-drugs franchise.

Takeda has sought several times to acquire Salix and Xifaxan, which Valeant had predicted could have $1 billion in sales this year. Takeda was a bidder for the company when Valeant won an auction for Salix in 2015, and earlier this year approached Valeant with a partner about buying the whole company, the Journal has reported.

Xifaxan sales haven’t done as well as some analysts expected, however. Many Salix sales representatives left the company, and Xifaxan has faced fierce competition from a competing drug, Viberzi, from Allergan PLC. Meanwhile, Teva Pharmaceutical Industries Ltd. also is working on a generic version of Xifaxan.

Valeant hopes an expanded sales force will boost Xifaxan sales by targeting the primary-care doctors who often treat such conditions. But the company attributed its lower its earnings guidance in part to the expense of increasing its sales force.

By Jonathan D. Rockoff and David Benoit

Source: Wall Street Journal

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