"We now have two new important therapeutic areas where we've really not paid a lot of time or attention to, . . ." Valeant CEO Michael Pearson told analysts during a conference call Monday following the deal to acquire Salix, a U.S.-based developer of gastrointestinal drugs.
The Salix deal, which would be the biggest in Valeant's history, and the $400-million acquisition earlier this month of oncology drugmaker Dendreon, expands the type of potential targets it can pursue in future acquisitions in addition to dermatology and eyecare.
Salix and Dendreon are the first major deals since Valeant came up short in its hostile bid last year for Botox maker Allergan, which was eventually acquired by Actavis. Despite failing to acquire Allergan, Valeant pocketed a net gain of US$287 million after selling its shares in Allergan.
Valeant is offering US$158 per share cash for the Salix. Including Salix's debt and cash on hand, the deal is worth US$14.5 billion.
The company's shares soared on the news to an all-time high of C$252.60 early Monday on the Toronto Stock Exchange before closing up $32.72 or 15 per cent at $250.13.
On the Nasdaq, Salix (Nasdaq:SLXP) shares lost $2.09 to US$155.76.
Valeant expects Salix will contribute modestly to Valeant's 2015 cash earnings per share, but projects a 20 per cent boost in 2016. The company is banking on the U.S. Food and Drug Administration granting approval for Xifaxan, a new Salix drug to treat irritable bowel syndrome with diarrhea.
Analysts said the Salix deal was positive for Valeant by adding another specialty area that will eventually boost earnings. But Douglas Miehm of RBC Capital Markets noted it comes with heightened risk due to inventory mismanagement issues at Salix that he believes Valeant can overcome.
The deal could be scuttled if Salix receives a higher bid, but Valeant stands to receive a US$355-million break fee.
While focused on cutting debt that stood at US$15.3 billion at year-end, the company said it will continue to be on the lookout for small "tuck-in" deals.
"We're still able to do some important, albeit smaller transactions while we're delivering," chief financial officer Howard Schiller said.
Valeant expects to reap more than US$500 million in annual cost savings for the combined company, but wouldn't say how much will come from Salix.
Valeant's net income surged to US$534.9 million or $1.56 per diluted share in the fourth quarter, compared with US$123.8 million, or 36 cents per share, a year earlier. Revenue jumped 10 per cent to US$2.3 billion despite a negative foreign exchange impact of $113 million.
Excluding one-time items, including $47 million in restructuring charges, it earned US$880.7 million or $2.58 per share, three cents above its prior guidance.
Organic sales increased 16 per cent in the quarter, exceeding its forecast of 12 per cent.
For the full year, it earned US$913.5 million or $2.67 per share, up from a loss of $866.1 million or $2.70 per share in 2013. Adjusted profits were $2.85 billion or $8.34 per share. Revenues increased 43 per cent to $8.26 billion.