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- 12/06/2016

Valeant will Keep Salix after deal falls apart

Pharma Horizon
Valeant Pharmaceuticals International Inc. has decided to keep and invest in its gastrointestinal-drugs division after talks to sell the unit to Takeda Pharmaceutical Co. fell apart, according to people familiar with the matter.

The discussions broke down mainly because of disagreements over the price, according to one of the people, who asked not to be identified because the matter is private. The decision to keep the business doesn’t prevent Valeant from pursuing future interest in the unit, another person said. Both Valeant and Takeda declined to comment.

Valeant’s shares closed down 8 percent to $15.79 in New York. Takeda shares traded 0.3 percent higher at 4,701 yen in 9:22 a.m. in Tokyo trading.

Crown Jewel

A failure to sell Salix, considered one of Valeant’s crown jewels, would put new pressure on the company to find ways to pay down its about $30 billion in debt. Since buying Salix for $11.1 billion in 2015, Valeant has been embroiled in scandals about its high prices and accounting that led to legal and regulatory investigations as well as a slump in some of its biggest products’ sales.

Under Christophe Weber, a Frenchman who became Takeda’s first foreign chief executive officer last year, the Japanese drugmaker has been looking abroad as domestic growth slows, and zeroed in on three therapeutic areas — gastroenterology, oncology and the central nervous system.

Reports of the stalled deal are “neutral” for Takeda because “nothing will change,” Credit Suisse analyst Fumiyoshi Sakai said via e-mail. “Meantime there will be continued speculation that Takeda keeps searching for M&A unless we hear otherwise from Christophe Weber,” Sakai said.

Valeant in November reported a third-quarter net loss of $1.22 billion, in large part due to a $1.05 billion goodwill impairment charge to write down the value of some U.S. businesses including Salix. Sales at Salix dropped 5.4 percent in the quarter amid lower prices and higher rebates.

Valeant announced on Tuesday that it was making a “significant” expansion in the size of the sales force for two Salix products, gastrointestinal treatment Xifaxan and constipation treatment Relistor, a sign that it had plans to keep the drug in-house. The drugmaker, based in Laval, Quebec, emphasized sales toward primary-care doctors.

Bonds Fall

Valeant debt plunged as much as 3.63 cents. The company’s most actively-traded bond, $3.25 billion of 6.125 percent coupon notes due in 2025, sank 2 cents to 75 cents at 1:54 p.m. in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The bonds earlier fell to 74.25 cents, the lowest price since they were issued in March 2015.

Xifaxan had sales of $273 million in the third quarter, and another drug, ulcerative colitis treatment Uceris, sold $40 million. Together, they made up about 13 percent of the company’s third-quarter revenue.

Chief Executive Officer Joe Papa, who joined in May, has said that he’s willing to divest marquee assets in his attempt to turn around the struggling drugmaker and lower its debt load. Shares have lost more than 90 percent of their value since their August 2015 peak.

The Wall Street Journal earlier reported that discussions to sell Salix to Japan’s Takeda for about $10 billion had broken down.

SEC Filings

Separately on Wednesday, the U.S. Securities and Exchange Commission released correspondence with Valeant after completing its review of the drugmaker’s 10-K for 2015. The letters show that Valeant will revise the way it disclosed some earnings measures after the agency raised questions about its tax accounting and use of non-GAAP metrics.

Specifically, the SEC questioned Valeant’s use of non-GAAP net income metrics, a measure of earnings that excludes some items. In a letter dated Oct. 28, Valeant said it was committed to making changes to how it calculates non-GAAP adjusted earnings, beginning with the fourth-quarter results and 2017 guidance.


Source: Bloomberg

See also: Financial Times 12/01/2016, Financial Times 12/0372016, Wall Street Journal 12/03/2016

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