Valeant Pharma to be bought

By Nathan Olivarez-Giles

June 22, 2010 12 AM PT

The once high-flying drug company Valeant Pharmaceuticals International of Aliso Viejo will be taken over by Biovail Corp. of Canada to form a new company that retains the Valeant name, the firms said Monday.

The headquarters of the new Valeant will be in Mississauga, Ontario, but the Orange County office will remain open and the current Valeant chief executive, J. Michael Pearson, will head the new company.

Not everyone will stay, however. Pearson said combining the companies, which is expected to be completed by the end of the year, would result in job cuts of up to 20% from their workforce. Valeant and Biovail executives declined to disclose anything further about expected layoffs.

According to 2009 filings, Valeant had 3,100 employees -- down from 12,000 in the 1990s -- and Biovail had about 1,300. Pearson said the annual cost savings from combining the companies would be about $175 million.

Valeant was founded in 1959 by the flamboyant, controversial Milan Panic, who in 1992 took a leave from the company and served as prime minister of Yugoslavia. Slobodan Milosevic ousted him after nine months. Panic returned to run Valeant until 2002, when he stepped down amid boardroom fights, dissident shareholder suits and allegations of sexual harassment.

In recent years, Valeant mostly switched from developing its own medications to buying up smaller drug companies. It also focused on introducing generic drugs in emerging markets in South America and other locales.

Biovail, which has had its own share of financial scandals over the years, is the maker of Wellbutrin XL, an antidepressant whose sales have fallen since a generic was introduced three years ago. The company is currently working on five drugs aimed at central nervous system disorders. One of the medications could be approved for sale this year, according to analyst Neil Maruoka of Canaccord Adams.

“But then it’ll likely be about 2013 before their next drug is ready to hit the market,” Maruoka said. “After that they could have a new drug or two coming out [each year] for a few years, so they need something to fill in that gap. Valeant could fill in that gap.”

But to keep expanding, Valeant needs cash.

“Valeant is growing and buying up smaller companies and drugs, so it’s not completely surprising that these two companies are merging,” said William Tanner, an analyst with Lazard Capital Markets.

“Valeant has products, a portfolio and a strategy but not a lot of financial flexibility. And Biovail has the financial flexibility -- they have more capital and can take on more debt -- but it seems they don’t have a strategy they felt confident in,” he said. “This might have been almost an exit for them.”

Pearson said the boards of both companies had signed off on the deal. It’s also subject to stockholder and regulatory approval. The deal calls for Valeant shareholders to receive, per share, a one-time cash dividend of $16.77 plus about 1.8 shares of Biovail.

“That is a high dividend to pay out, but to make this work, we had to shrink ourselves so we could legally merge into Biovail,” he said.

Under the deal, Biovail shareholders would own 50.5% of the new company and Valeant shareholders would own the rest.

The proposed deal was announced Monday before the start of trading. Valeant shares rose $1.03, or just over 2%, to $46.90. Biovail shares jumped $2.07, or more than 14%, to $16.67.

Panic, who founded Valeant under the name ICN Pharmaceuticals, was known as an intense, hot-tempered executive who didn’t back down from fights. He started the venture in his garage, using a converted washing machine as a primary piece of equipment, and built the company into an international force. But in 1998 the Securities and Exchange Commission sought to have him ousted in connection with alleged trading violations involving company stock.

In 2001, ICN pleaded guilty to securities fraud and agreed to pay a $5.6-million fine for misleading investors about its hepatitis C drug ribavirin.

Panic settled at least four sexual harassment suits during his time at the firm, in one case paying $3.5 million to a former employee.

He resigned as chief executive in 2002 after dissident shareholders took control of the board of directors.

Biovail’s founder and then-CEO, Eugene Melnyk, resigned in 2007 after the company was accused of accounting fraud. In 2008, Biovail paid $10 million to settle SEC charges concerning manipulation of financial results.

nathan.olivarezgiles@latimes.com

(BEGIN TEXT OF INFOBOX)

Combining

Biovail Corp.

Headquarters: Mississauga, Canada

CEO: William Wells

Founded: 1988

Employees: 1,249

2009 revenue: $820.4 million

Market capitalization: $2.6 billion

Valeant Pharmaceuticals

International