Salix Pharmaceuticals and Cosmo Pharmaceuticals said today they “mutually” agreed to end a planned $2.7 billion “inversion” merger that would have transformed Salix into a subsidiary of an Irish-domiciled unit of Cosmo to have been renamed Salix. The companies have blamed growing U.S. political pressure against the tax-slicing deals—though their merger also appears to have succumbed to Salix’s attractiveness as a takeover target by at least two large-and-growing suitors.
“When we announced our agreement to merge with Cosmo Technologies in July, we believed the combination would generate significant value for our stockholders through the addition of key products to our development pipeline and a more efficient corporate structure that would enhance our profitability,” Carolyn Logan, Salix’ president and CEO, said in a statement.
“The changed political environment has created more uncertainty regarding the potential benefits we expected to achieve. As a result, Salix and Cosmo have mutually agreed to terminate the proposed transaction. We look forward to a continuation of our long-standing relationship with Cosmo,” Logan added.
Under the companies’ termination agreement, Salix agreed to pay $25 million Cosmo—whose CEO Alessandro Della Cha added that his company’s focus has shifted to obtaining approval of SIC 8000 and filing NDAs for rifamycin SV MMX and Methylene Blue MMX NDA in the next months.
SIC 8000 is an injectable drug—SIC stands for Submucosal Injectable Composition—that is designed to enable easier and faster removal of polyps/adenomas/early cancers during colonoscopies. SIC 8000 is injected during colonoscopy under the polyp, creating a cushion elevating the polyp and thus separate it from the underlying colonic wall. To allow better recognition of tissues and polyp margins and diminish colon perforation risk SIC 8000 is additionally dyed with Methylene Blue MMX®.
Rifamycin SV is a broad spectrum, semi-synthetic, orally non-absorbable antibiotic designed to treat bacterial infections of the colon such as traveler’s diarrhea, infectious colitis, Clostidium difficile associated disease, diverticulitis and also as supportive treatment of Inflammatory Bowel Diseases and Hepatic Encephalopathy.
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 is based in Raleigh, NC.
The companies’ about face occurred 11 days after the U.S. Department of the Treasury said it would issue new rules designed to limit the economic benefits of so-called “inversion” transactions. One change would limit the ability to access cash held by overseas subsidiaries of a U.S. company without incurring U.S. tax by treating “hopscotch” loans from those subsidiaries to its prospective overseas parent as a taxable dividend to the U.S. parent corporation. Also to be targeted, according to Treasury, are deals designed to remove the subsidiaries’ foreign earnings from U.S. taxes through “de-control” of overseas subsidiaries from their U.S. parent.
“These first, targeted steps make substantial progress in constraining the creative techniques used to avoid U.S. taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether,” Treasury Secretary Jacob J. Lew said in a Sept. 22 statement announcing the department’s planned new anti-inversion rules.
Yet a factor unrelated to inversion deals and taxes may have helped scuttle the Salix-Cosmo deal as well.
Under the Salix-Cosmo merger, Salix was to have paid 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).
However, Salix had been made offers reported at more than $10 billion each by two fast-growing suitors attracted to the company for different reasons. Some of Salix’ top 20 investors had threatened to reject the Cosmo deal, and instead pressed Salix to consider selling itself instead, Reuters reported last month,
One of Salix’ suitors was Allergan, which is eager to grow in order to fend off a hostile takeover bid by Valeant Pharmaceutical Industries that has grown from an initial $47.5 billion to $53 billion. Allergan shareholders are expected to vote on Valeant’s offer in December.
Salix held on-again, off-again talks since July with Allergan, whose largest shareholders came to oppose a merger between the companies, according to a Bloomberg News report attributed to “one of the people familiar with the situation.”
Yesterday, Bloomberg reported that Salix was unable to come to terms with Allergan and is now in talks to be acquired by its other suitor Actavis. The report was attributed to unnamed “people with knowledge of the matter” and added that an agreement between Salix and Actavis has become more likely in the past week, “though no deal is imminent.”