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Jul 9, 2014

Salix, Cosmo See Green in $2.7B Merger

  • Salix Pharmaceuticals and Cosmo Pharmaceuticals have agreed to a merger in which Salix will become a subsidiary of an Irish-domiciled unit of Cosmo that will change its name to Salix. That will enable Salix to reduce its taxes by redomiciling in Ireland—the latest such “inversion” deal in recent months.

    The deal—set to close in the fourth quarter—creates a combined drug developer specializing in treatments for gastro-intestinal disorders such as inflammatory bowel disease, colon infections and diagnostics for the colon.

    Salix, now based in Raleigh, NC, will pay Cosmo about $2.7 billion in stock, in return for owning Cosmo’s U.S. patents for rifamycin MMX®, for conditions of the colon that include diverticulitis; methylene blue MMX®, designed to aid in the detection of colon cancer; and the ulcerative colitis treatment Uceris® (budesonide).

    The merger would eliminate royalties and milestone payments Salix now must pay Cosmo for Uceris, while modifying the companies’ Uceris supply agreement. Cosmo developed Uceris but licensed it in the U.S. to Santarus—which Salix acquired for $2.6 billion in a deal completed in January.

    Salix and Cosmo said these provisions will substantially improve Uceris’ profitability, allowing the newly combined Salix to capture full value of the existing indication as well as potential future indications.

    Cosmo would be required to continue supplying Uceris to Salix, as well as rifamycin MMX and methylene blue MMX. MMX is Cosmo’s core drug delivery technology, designed to deliver active ingredients in a targeted manner in the colon, and developed at its GMP manufacturing facilities in Lainate, Italy, where Cosmo is based. Salix will also acquire Cosmo’s patents for rifamycin MMX in Canada, some Latin American countries, India, China, Japan and the rest of the Far East, excluding Australia and New Zealand, as well as Cosmo’s patents for Uceris in Japan.

    Upon completion of the merger, Salix shareholders are expected to own just under 80% of the ordinary shares of the Cosmo subsidiary, to be renamed Salix Pharmaceuticals plc, with Cosmo expected to own slightly more than 20%. Salix shareholders will receive one ordinary share of shares in the renamed company in exchange for each share of common stock of the old Salix Pharmaceuticals Ltd. they own at closing.

    Salix and Cosmo join a parade of biopharmas that have combined through inversion deals resulting in tax savings for the U.S.-based partners through redomiciling in Ireland. The deals are legal but have drawn the ire of some U.S. politicians.

    Ireland’s corporate tax rate of just 12.5% has prompted several American firms to take advantage by moving their headquarters there following deals with Irish-based companies—including Actavis, which acquired Warner Chilcott, in a deal completed in October; and Perrigo, which acquired Elan in December. AbbVie hopes to join those companies by acquiring Irish-based Shire—whose board said yesterday it will review a $51.5 billion proposed acquisition by the US biopharma spun out of Abbott Laboratories last year.

    “The new corporate structure greatly enhances our ability to compete for licensing deals and acquisitions, and improves the economics of future business development opportunities for Salix,” Carolyn Logan, President and CEO of Salix, said in a statement.

    Added Alessandro Della Chá, CEO of Cosmo: “It was our strategic objective to find the best possible partner to market our products in the U.S., and to have a substantial financial interest in this.”

    The merger gives Cosmo the right to designate one director to serve on the combined company’s board of directors for at least 10 years after the completion of the merger, subject to standstill provisions.


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