Biovail, Valeant come together

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This article was published 22/06/2010 (5775 days ago), so information in it may no longer be current.

TORONTO — Canada’s largest publicly traded pharmaceutical company, Biovail Corp. — which has major operations in Steinbach — has agreed to merge with Valeant (NYSE:VRX) in a US$3.2-billion deal that will likely result in hundreds of job cuts over the next year as management works to refocus the business.

The combined company will be called Valeant Pharmaceuticals International Inc. and have a “significantly expanded presence” in North America and operations in eight other countries, the companies said Monday.

The merger will also mean deep job cuts between the two firms, with a reduction of between 15 and 20 per cent — or between 660 and 880 jobs.

“Today’s announcement is significant because it enables Biovail, in a single step, to leapfrog ahead and create a leading diversified specialty pharmaceuticals company that is focused on growth and cash-flow generation,” Biovail CEO Bill Wells said.

The merged company’s CEO will come from Valeant but Biovail’s current shareholders will own slightly more than half of all the stock and the corporate headquarters will be in Mississauga, near Toronto, where Biovail is based.

Wells, currently the CEO of Biovail, will be the non-executive chairman.

Tim Chiang, an analyst at CRT Capital Group, said the deal will diversify Biovail’s source of revenues and give Biovail improved cash flow to help offset recent spending on developing a number of central nervous system drugs.

He predicted one of the first moves of Valeant CEO Michael Pearson — who will head the merged company — will be to evaluate which CNS drugs will continue to be developed.

“I think he does see value in the pipeline and I think he recognizes that’s a valuable niche to have. Neurology, central nervous system, that’s something that Valeant didn’t really have a critical mass in,” he said.

Combined, the companies had about US$1.65 billion in revenue in 2009. Biovail makes the antidepressant Wellbutrin XL and extended-release pain drug Ultram ER. Valeant, based in Aliso Viejo, Calif., sells treatments for chronic illnesses and generic drugs.

“By the second year after close, we expect to achieve, at minimum, $175 million in cost synergies,” Pearson told analysts Monday.

“We would expect to achieve further margin expansion through taking advantage of Biovail’s corporate financial structure. In addition, we expect to deliver double-digit top and bottom-line growth as we execute the new Valeant strategy.”

Investors cheered the deal Monday, sending Biovail stock up $2.15 or 14.5 per cent to C$17.02 on the Toronto stock market. In New York, Valeant stock edged ahead 1.03 cents to US$46.90.

The deal completes a comeback of sorts for Biovail, which was tainted by scandal and saw its sales fall as its top-selling drugs, including Wellbutrin XL, faced competition from low-cost generics.

In 2008, Biovail and several of its top executives were accused of manipulating the company’s results to make its performance look better.

The company has settled allegations it manipulated its financial results and paid doctors to prescribe its blood pressure drug Cardizem LA. It is also shifting its focus toward the development of central nervous system disorder drugs.

Biovail’s founder, chairman and CEO Eugene Melnyk left the company in 2007 after Biovail was accused of accounting fraud. Biovail settled the allegations by making payments to the Securities and Exchange Commission in the U.S. and the Ontario Securities Commission.

In early 2008, the company decided to concentrate on developing central nervous system disorder treatments. But Melnyk, who was still Biovail’s largest shareholder, didn’t approve and started an unsuccessful attempt to have his own nominees elected by shareholders to the board of directors. Under the current management and board, Biovail has made a series of deals to acquire new drugs from companies including Amgen, Santhera Pharmaceuticals, and Prestwick Pharmaceuticals. It also bought the U.S. rights to Wellbutrin XL.

The terms of Monday’s transaction call for Valeant stockholders to get a one-time special cash dividend of $16.77 per share immediately prior to closing of the merger, or about US$1.27 billion in total. They will also receive 1.7809 shares of Biovail (TSX:BVF) common stock upon closing of the merger in exchange for each share of Valeant common stock they own.

— The Canadian Press