E Valeant Edges Up 15% After Announcing That It Will Acquire Salix

Valeant Pharmaceuticals (VRX) has agreed to buy drug maker Salix Pharmaceuticals (SLXP) for $10.4 billion dollars in cash. The deal is expected to close in the second quarter of 2015, which would definitely add a huge amount of value for Valeant. Currently, Valeant specializes in oral, skin, and eye drugs. The Salix acquisition will add gastrointestinal drugs to its pipeline. In fact, Salix received FDA approval for three of its drugs back in 2014, and is currently seeking FDA approval for its top selling product xifaxan for irritable bowel syndrome. 

Valeant is well known for purchasing many biotechs at the expense of a small Research and Development department. Just the other week, for example, it acquired Dendreon Corp (DNDN) assets for its prostate cancer vaccine in a $495 million dollar deal. Earlier last year, however, it attempted to acquire drug maker Allergan (AGN) - which is the maker of the all-popular botox injection - but the deal never went through. This is due to the fact that Allergan has a large research and development program, which is undesirable to a company like Valeant which is looking to acquire de-risked commercial drug products.

Valeant acquires pharmaceutical companies, and subsequently helps increase the sales of the drugs with their sales force. For this specific reason, Allergan decided against selling itself to Valeant, and was later bought by Actavis (ACT) for $66 billion dollars in a cash and stock deal. This deal between Actavis and Allergan is expected to close sometime in 2015. Valeant says the Salix acquisition will enable both companies to save $500 million dollars over the next 6 months by reducing corporate costs. In addition, Valeant is taking on Salix's debt, which, when coupled together with its own debt, combines for $31 billion dollars in overall debt. Valeant is expected to continue acquiring pharmaceutical companies that it believes will add value to its long-term acquisition strategy. Whether this strategy works in the long run remains to be seen.

Disclosure: no position in any stocks mentioned

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Stock Fan 4 years ago Member's comment

Thanks for the news update. But what's your personal take on this deal?

Terry Chrisomalis 4 years ago Author's comment

I think it is an okay deal but now Valeant has taken on more debt. Valeant already had billions of dollars in debt. With this acquisition occurring Valean'ts Debt will go to $31 billion dollars. Salix knew their problems with debt so I guess they figured to sell themselves to someone else. What do you think of the deal?

Terry Caruso 4 years ago Member's comment

You said the company tried to acquire Allergan but the deal fell through because Valeant didn't like it's large R&D program. If true, why did it try to acquire $AGN in the first place?

Terry Chrisomalis 4 years ago Author's comment

Valeant is known to buy out big R&D companies and then improve sales on their products. But Allergan didn't want to sell to Valeant because Allergan wants to maintain its big R&D department. Valeant would have cut R&D spending on Allergan if it had acquired it.

Terry Caruso 4 years ago Member's comment

I get it now, thanks for the clarification.