Valeant Pharmaceuticals International (VRX) recently announced that following shareholder approval, the company’s merger with Canada-based Biovail Corp. (announced in June) has completed. The merged company will retain the name Valeant Pharmaceuticals International and focus on growth areas, which include neurology and dermatology.
As per the terms of the deal, Valeant Pharma shareholders received 1.7809 Biovail shares for each Valeant Pharma share they own and a special cash dividend of $16.77 per share.
When the merger was first announced in June, Valeant Pharma had said that following the completion of the union, Biovail stockholders would own about 50.5% with Valeant Pharma stockholders owning about 49.5% of the new company.
On the second quarter conference call, Valeant Pharma said that it expects the combined company to generate $300 million in cost synergies, of which $200 million is expected in 2011 and the rest in 2012. About 25% of the combined company’s employees are likely to lose their jobs.
During the second quarter, Valeant Pharma incurred about $4.8 million merger-related expenses. These costs primarily included legal and professional fees. The company expects to incur additional merger-related costs during the remainder of 2010.
Valeant Pharma is currently awaiting US Food and Drug Administration’s (FDA) approval for its lead pipeline candidate, ezogabine (epileptic seizures). Unfortunately, the FDA recently extended the review period for ezogabine by three months to November 30. Further, the company faces major concern with its neurology product Diastat and HIV drug ribavirin facing generic competition.
The merger with Biovail Corp. will help extend Valeant Pharma’s product portfolio significantly and overcome these problems as Biovail’s product portfolio is quite diverse with drugs like Wellbutrin XL for the treatment of depression in adults; Xenazine for the treatment of chorea associated with Huntington’s disease; Zovirax Ointment for the management of initial genital herpes and Zovirax Cream for the treatment of herpes labialis.
Biovail also has an alliance with Teva Pharmaceutical Industries Ltd. (TEVA) for the marketing of generic products. This will help Valeant Pharma to launch its own branded generics if and when needed.
Keeping these points in mind, we currently have a Zacks #2 Rank (short-term Buy rating) on Valeant Pharma, while longer term, we have a Neutral recommendation on the company.
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