Getting under their skin

Valeant and Biovail agree to merge, creating leader in dermatology and neurology pharmaceuticals

Kimberely Sirk
Register for free to listen to this article
Listen with Speechify
TORONTO—Valeant and Biovail agreed in June to merge their two companies and build on efficiencies and limited patent exposure while creating a more nimble pathway for bringing therapies to consumers. The combined company will be called Valeant Pharmaceuticals International Inc., a multinational, specialty pharmaceutical company that develops, manufactures and markets a broad range of pharmaceutical products primarily in the areas of neurology and dermatology.

The mid-year deal follows a busy first half of 2010 for Valeant, as it has acquired or entered into partnerships with four other drug companies across the Americas. These include U.S. and Canadian firms, as well as a Brazilian generic drug company.

Valeant and Biovail believe the new Valeant's scale, financial strength and complementary product lines will enable it to pursue substantial growth opportunities. The combined company will have a significantly expanded presence in North America and operations in eight other countries, working across four growth platforms. The new Valeant will be able to leverage its complementary product lines and operations in specialty central nervous system, dermatology, Canada and emerging markets/branded generics.

In addition, the combined company will have limited patent exposure and enjoy strong and stable cash flows from legacy products that will support future growth.

"The merger provides a larger platform for Valeant's strategy for growth with a broader product portfolio and strong cash flows," says Laurie W. Little, vice president for investor relations at Valeant. "While the two companies do not have overlapping products, and have not worked together before, we do have similar therapeutic lines, including neurology and dermatology. Since we have overlapping infrastructure in Canada and the U.S., there will be some cost savings and synergies as we combine the commercial operations."

Under the terms of the agreement, Valeant stockholders will receive a one-time special cash dividend of $16.77 per share immediately prior to closing of the merger and 1.7809 shares of Biovail common stock upon closing of the merger in exchange for each share of Valeant common stock they own. Upon the completion of the merger, Biovail stockholders will own approximately 50.5 percent and Valeant stockholders will own approximately 49.5 percent of the shares of the combined company on a fully diluted basis. To finance the transaction, the companies have secured a commitment of $2.8 billion through a term loan facility provided by Goldman Sachs Bank USA, Morgan Stanley & Co. Inc. and Jefferies & Co. Inc.

According to a presentation to shareholders that was also posted to the Valeant website, one of the company's strategies is to acquire "under-managed companies with marketed products" because those types of businesses have "higher returns than traditional R&D organizations."

J. Michael Pearson, currently chairman and CEO of Valeant, will serve as the company's new CEO, residing in Barbados. Bill Wells, currently CEO of Biovail, will be the non-executive chairman. Valeant's new board of directors will consist of 11 members, including five Biovail representatives, five Valeant representatives and one additional independent Canadian resident director to be identified through a search process and nominated by Valeant and agreed upon by Biovail. Robert A. Ingram, currently lead director of Valeant, will serve as lead independent director of the new Valeant's board. Michael Van Every, currently chairman of Biovail's audit committee, will serve in the same function for the combined board.

The new Valeant will retain Biovail's corporate structure and related financial efficiencies, leading to enhanced financial performance.

"From a financial perspective, Valeant's business will be able to take advantage of Biovail's corporate infrastructure, which will potentially lead to enhanced financial performance," says Little. "The combined companies will continue to focus on the countries we currently operate in and continue the Valeant strategy."  

According to the company's website, Biovail Corp. is Canada's largest publicly traded pharmaceutical company. Beginning in the early 1990s, Biovail's strategy was to apply advanced drug delivery technologies to improve the clinical effectiveness of medicines. Since that time, Biovail has been engaged in the formulation, clinical testing, registration, manufacture and commercialization of pharmaceutical products. The company's primary markets are the United States and Canada.

Biovail's business growth since the 1990s was driven by the development and large-scale manufacturing of pharmaceutical products incorporating oral drug-delivery technologies. The application of these technologies to existing orally administered medications provided Biovail, together with its partners, with the opportunity to extend product life cycles through the development of novel formulations. The company's successes in this regard include Wellbutrin XL, Ultram ER and Cardizem LA. Today, while Biovail maintains a broad portfolio of drug delivery technologies (including controlled release, enhanced absorption, taste masking and oral disintegration technologies), these technologies no longer represent the core of the company's business model.

The change to Biovail's business strategy was a result of various changes in the environment for oral controlled-release products, including increased generic sophistication and competition, a slowdown of new drug approvals and increasing financial pressures from third-party payors.

That new strategy targets the development of pharmaceuticals that address unmet medical needs in specialty central nervous system disorders. For example, the company also announced in June that Biovail Laboratories International and MedGenesis Therapeutix were awarded a $2.1 million grant from the Michael J. Fox Foundation for Parkinson's Research to further their collaboration in the development of glial-cell line derived neurotrophic factor.

"This compelling combination will create tremendous value for stockholders of both companies as our business benefits from cost savings, greater scale, efficiencies from extending Biovail's corporate structure and enhanced financial strength and flexibility," said Valeant's Pearson in a prepared statement. "We are committed to delivering the anticipated cost savings benefits and, as we did with Valeant over the past two years, transforming the new entity into a diversified, specialty pharmaceutical company focused on growth and cash flow generation."

Dr. Douglas J.P. Squires, chairman of Biovail's board of directors, adds, "The combination of Biovail and Valeant creates a new leader in specialty pharmaceuticals by combining two highly successful management teams in our industry. Our board is enthusiastic about the opportunities the combination will bring for shareholders and employees of both companies."

Following completion of the merger, the new Valeant will be headquartered in Mississauga, Ontario and will remain a Canadian corporation, listed on both the Toronto and New York Stock Exchanges. In addition, the combined company will retain Biovail's existing principal operating subsidiary in Barbados, which will continue to own, manage, control and develop intellectual property for the combined company. The location of the combined company's U.S. headquarters will be determined after the close of the transaction, which according to Valeant's Little, should occur in October or November of this year.

The transaction is subject to approval by Valeant and Biovail stockholders and the satisfaction of customary closing conditions and regulatory approvals, including antitrust and competition law approvals in the United States and certain other foreign jurisdictions.

Kimberely Sirk

Subscribe to Newsletter
Subscribe to our eNewsletters

Stay connected with all of the latest from Drug Discovery News.

March 2024 Issue Front Cover

Latest Issue  

• Volume 20 • Issue 2 • March 2024

March 2024

March 2024 Issue