Canada's Valeant Pharmaceuticals International Inc. has moved to acquire gastrointestinal (GI) specialist Salix Pharmaceuticals Ltd. in an all-cash deal valued at about $10.1 billion, or $14.5 billion in enterprise value, a measure including Salix's debt and cash on hand.

The deal extends last year's strong M&A record and could bring a tidy close to a noisy chapter of proposed deals, punctuated by Valeant's failed quest to buy Allergan Inc., Allergan's scuttled bid for Salix, and Salix's own attempt to complete a tax inversion deal through a combination with Cosmo Pharmaceuticals SpA. (See BioWorld Today, Oct. 6, 2014, and Nov. 18, 2014.)

Both Valeant and Salix's boards have approved the all-cash $158-per-share offer, to be financed through debt and bonds. If closed as expected during the second quarter of 2015, the deal will add 22 products to Laval, Quebec-based Valeant's broad portfolio, including Salix's leading product, the hepatic encephalopathy and traveler's diarrhea antibiotic Xifaxan (rifaximin) and the glucocorticosteroid Uceris (budesonide).

The deal was announced alongside Valeant's fourth quarter earnings, in which the company reported a net profit of $534.9 million, or $1.56 per share, up from $123.8 million, or 36 cents per share in the fourth quarter of 2013. Revenue was $2.28 billion, compared with $2.06 billion.

Shares of Valeant (TSX:VRX) rose C$32.72 (US$26.01), or 15.1 percent to close at C$250.13 (US$198.87) on the Toronto Stock Exchange on Monday. Salix shares fell $2.09, or 1.3 percent to $155.76.

Analysts covering the deal expressed satisfaction with the price, but differed on how likely it is that competitive bidders would jump into the ring. Jefferies LLC analyst David Steinberg pointed to media reports that Shire plc and Endo International plc have expressed interest in the company, speculating that there may have also been interest from others such as Astrazeneca plc or Takeda Pharmaceutical Co. Ltd., while Jason Gerberry of Leerink Partners LLC rated odds of a competitive bid as low, suggesting that the "most logical" competitor for Salix, Actavis, will be too highly levered following the Allergan deal.

For the Valeant-Salix combination to work, said Umer Raffat, a senior analyst at Evercore ISI, Valeant will have to boost Xifaxan's sales to between $1.5 billion and $2 billion from its current level of almost $700 million in annual sales. To get there from its current level, he said, Valeant will first need to secure FDA approval to market Xifaxan for irritable bowel syndrome with diarrhea (IBSD), an indication currently under review with a May 27 PDUFA date.

Salix first filed its supplemental new drug application (sNDA) seeking approval for Xifaxan to treat IBSD in June 2010, according to Thomson Reuters Cortellis. But in March 2011, the FDA issued a complete response letter, stating that the sNDA could not be approved due to a requirement for re-treatment information. By November 2011, Salix said the FDA's Gastrointestinal Drugs Advisory Committee had met and supported the design of a new trial to evaluate repeat treatment cycles of rifaximin in the indication. That trial, Target 3, launched in February 2012, with Salix reporting results in July 2014 and including them in a refiled the sNDA.

Valeant's chairman and CEO, J. Michael Pearson, said that "the growing GI market has attractive fundamentals, and Salix has a portfolio of terrific products that are out-pacing the market in terms of volume growth and a promising near-term pipeline of innovative products."

The scale of that growth was captured in Salix's most recent quarterly results, in which the Raleigh, N.C.-based company reported total net product revenue of $1.1 billion for the first nine months of 2014, compared to $676.2 million for the first nine months of 2013. For the third quarter, Xifaxan accounted for $159.7 million with prescriptions growing 23 percent year-over-year and 4 percent vs. the second quarter of 2014, while Uceris brought in $49.3 million, with prescriptions growing 76 percent year-over-year and 15 percent vs. the second quarter.

Within six months of deal's close, Valeant expects the combination to yield more than $500 million in annual cost savings from the cost base of the combined company, primarily from reductions in corporate overhead and R&D "rationalization." The company does not plan to reduce Salix's specialty sales forces or hospital, key account and field reimbursement teams, it said.

The run-up to the deal included what Valeant called "extensive due diligence" on Salix's higher-than-usual inventory levels, a problem Salix revealed in November 2014. Valeant said while it expects to work down wholesale inventories, targeting levels of two months or less by year-end 2015, it expects the net impact of the excess inventory on 2015 revenues to be more than $500 million. The matter caused Valeant to guide for modestly accretion to its earnings per share in 2015, followed by more than 20 percent accretion to 2016 cash EPS. (See BioWorld Today, Nov. 10, 2014.)

Valeant also said it expected on Monday to close its $296 million offer to acquire the worldwide rights of Provenge (sipuleucel-T) and certain other Dendreon assets for $296 million from Dendreon Corp., of Seattle.

EXTENDED MOMENTUM

Valeant's acquisition of Salix extends the momentum created by a wave of dealmaking activity in 2014, a year in which M&A comprised $277 billion, or 58 percent, of the year's total deals value, according to Thomson Reuters Recap. Since then, the deals have continued rolling in during 2015, with Merck & Co. Inc.'s $9.5 billion Cubist Pharmaceuticals Inc. buy closing in January; Endo International plc's $2.6 billion purchase of Auxilium Pharmaceuticals Inc. closing this month; and Bristol-Myers Squibb Co.'s $1.25 billion purchase of Flexus Biosciences Inc. on Monday. (See BioWorld Today, Jan. 15, 2015, and today's edition for details.)