Salix acquisition values Santarus portfolio, sales force at $2.6bn
This article was originally published in Scrip
The $2.6bn purchase of Santarus will do more for Salix Pharmaceuticals than expand its revenue base with a slate of marketed products and a pipeline of new drugs.
Raleigh, North Carolina-based Salix had its own assets and investigational therapies in mind when it set out to buy Santurus, since the acquisition will substantially increase the size of its sales force targeting gastrointestinal specialists and improve its reach to primary care physicians, which will be crucial if the US FDA approves Xifaxan (rifaximin) in the treatment of irritable bowel syndrome with diarrhea (IBS-D).
"We're very pleased to be able to merge our sales forces, combine two complementary product portfolios, expand our pipeline, diversify revenue, access health care providers in primary care and add a significant number of health care prescribers to our called-on universe," Salix president and CEO Carolyn Logan said in a 7 November conference call to discuss the company's third quarter earnings and its acquisition of San Diego-based Santarus.
Ms Logan said the merger would create "a larger and even stronger company with greater scope and impact than either company could offer independently."
Salix's enthusiasm for the transaction showed in the company's $32 per share offer to buy all outstanding Santarus shares. The price is a 37.8% premium to Santarus's $23.22 closing price on 7 November when the company's market cap was $1.5bn.
Santarus shares climbed 37% in after-hours trading to $31.80 following the acquisition announcement. Salix jumped 9.4% after the market closed to $78. Its market cap is $4.4bn.
Jason Gerberry from Leerink Swann said in a research note that the Santarus deal "looks expensive for an asset whose main products all lose patent exclusivity in the next four to seven years and most of the pipeline programs are still pre-proof of concept."
However, Mr Gerberry noted, the acquisition should reduce Xifaxan from being 70% to 50% of Salix sales, provide reasonable accretion starting in 2014, and lessen the cost of developing a primary care sales force to market Xifaxan in IBS.
Salix anticipates filing a response to the US FDA's 2011 complete response letter rejecting Xifaxan for the treatment of IBS-D by the end of the first half of 2014 (scripintelligence.com, 8 March 2011).
Ms Logan said during the conference call that Santarus has patents expiring in 2020 for the ulcerative colitis drug Uceris (budesonide) and in 2016 for the diabetes therapy Glumetza (metformin HCI extended release tablets) and Zegerid for heartburn. But Salix is "comfortable" with the forthcoming expiries and will be ready for generic competition by getting new drugs approved and acquiring products or companies that may complement its portfolio.
Glumetza is Santarus's top-selling product with $45.6m in third quarter sales, followed by Zegerid with $27.1m and Uceris with $19.6m in revenue between July and September. The company's total revenue for the quarter was $98.8m and non-GAAP adjusted earnings were $35.6m compared with $54.7m in total revenue and $12.3m in Non-GAAP earnings.
Salix reported total revenue of $238.2m in the third quarter, including $165.9m in Xifaxan sales and $31.5m for Apriso (mesalamine) for maintenance of remission for ulcerative colitis. Xifaxan and Apriso sales increased 20% and 93%, respectively, compared with the third quarter of 2012. The company's non-GAAP net income was $59.8m for July-to-September 2013 versus $48.2m for the same period last year.
Salix and Santarus revenue and earnings were in-line with stock market consensus.
Salix had $852.1m in cash as of 31 October and the company intends to finance the Santarus acquisition with $800m in cash and $1.95m in debt from Jefferies Finance, which also will provide a $150m revolving line of credit.
Salix plans to report $920m in full-year 2013 revenue and non-GAAP net income of $243.1m or $3.68 per share. The company expects the acquisition of Santarus, which should close in the first quarter of 2014, to be accretive to earnings in 2014. Salix projected combined non-GAAP net income of $5 per share in 2014, assuming no upside from drug approvals or product launches.