Valeant buys Salix for $10B, preps a cut in R&D costs and overhead

Much as expected, M&A leader Valeant ($VRX) has bagged Salix Pharmaceuticals ($SLXP) in a buyout and now plans to slash into its research and development budget to help pay for the deal.

Valeant is paying $158 a share for Raleigh, NC-based Salix, gaining a portfolio of GI drugs in the process. The deal comes with an enterprise value of $14.5 billion and adds to a stockpile of drugs at the biopharma raider, which spent months in an unsuccessful effort to acquire Allergan ($AGN).

Rumors about a possible Valeant bid have been circulating for some time, but Shire ($SHPG) also recently emerged as a possible bidder--though that may have been a stratagem aimed at pushing Valeant to sweeten any offer it had on the table. Some analysts had been estimating that a buyout could come at up to $170 a share.

Valeant CEO J. Michael Pearson

Valeant has a clearly defined game plan in these buyouts. Salix will now be carved up to provide $500 million in "synergies." No fan of R&D, Valeant CEO J. Michael Pearson plans to find a big chunk of that savings by paring back research, which cost $142 million in the first 9 months of 2014 at Salix. Cuts in corporate overhead should achieve the rest of the projected cutback, with the accountants planning to complete the surgery in the first 6 months after the deal is closed.

Salix's website lists 7 programs in the pipeline. Rifaximin (Xifaxan) is under FDA review for irritable bowel syndrome after a lengthy delay with two follow-up formulations in the clinic. There's also a new formulation of budesonide along with a midstage therapy for rheumatoid arthritis and another program listed for an investigative bowel purgative.

"Salix's market-leading gastrointestinal franchise is an ideal strategic fit for Valeant's diversified portfolio of specialty products," said Pearson in a statement. "The growing GI market has attractive fundamentals, and Salix has a portfolio of terrific products that are outpacing the market in terms of volume growth and a promising near-term pipeline of innovative products. With strong brand recognition among specialist GI prescribers, a highly rated specialty sales force, and a significant product and commercial presence across the undertreated and underserved gastrointestinal market, this acquisition offers a compelling opportunity for Valeant to create a strong platform for growth and business development."

- here's the release