Valeant: How This $10-Billion Deal Killed VRX Stock Today

valeant stockValeant Pharmaceuticals Intl Inc (NYSE:VRX, TSE:VRX) just cannot catch a break these days. VRX stock is down another 7.5% as a deal to sell off its stomach medication fell through.
Japan’s Takeda Pharmaceutical Co Ltd (TYO:4502) was in talks with Valeant to acquire Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) from the company for a reported $10.0 billion. Salix is especially important to VRX stock as it produces what many consider a crown jewel of Valeant’s medications: irritable-bowel syndrome drug “Xifaxan.” The drug was projected to have a $1.0-billion sales year in 2016, but revenue fell short. (Source: “Valeant’s Discussions to Sell Salix to Takeda Have Broken Down,” The Wall Street Journal, November 30, 2016.)
This is also not Takeda’s first shot at acquiring Salix. The company had been competing with Valeant when Salix was first auctioned off in 2015, eventually losing out to Valeant’s $11.0-billion bid and taking on $4.0 billion in debt. (Source: “It looks like a key Valeant deal might be falling apart, and now the stock is tanking,” Business Insider, November 30, 2016.)
The sale on November 30 for a reported $10.0 billion would therefore be a significant decrease from what Valeant paid last year. Beyond Salix, Takeda reportedly offered to acquire Valeant itself earlier in the year, so these companies are hardly strangers. (Source: Ibid.)
VRX stock is redirecting its efforts, it seems, away from selling Salix to instead increasing its sales team in an effort to boost revenue. It announced yesterday that it is initiating a “significant sales force expansion” for Xifaxan and Relistor, which is a treatment for opioid-induced constipation. (Source: “Valeant Announces The Initiation Of A Primary Care Sales Force For Xifaxan® And Relistor®,” PR Newswire, November 29, 2016.)
“Our goal in building a primary care sales force is to maximize opportunities for Xifaxan and Relistor to help our products reach full potential. Xifaxan and Relistor are integral to our gastrointestinal franchise which remains a core asset for future growth potential in the hands of Valeant,” said Joseph C. Papa, chairman and CEO of Valeant, in a statement.
Since the beginning of 2016, VRX stock has fallen by roughly 85%, due to both missing projections as well as legal troubles concerning fraud charges levied at former executives. The company is $30.0 billion in debt.