Valeant Pharmaceuticals International will acquire Salix Pharmaceuticals for $14.5 billion, in a blockbuster deal designed to catapult the combined company to leadership in the U.S. gastrointestinal drug market.

The boards of both companies have approved the deal, which is expected to close in the second quarter of 2015, subject to customary closing conditions and regulatory approval. Salix was one of the Nine Takeover Targets of 2014 identified in a GEN List published last October.

The combined company would include Salix’s portfolio of 22 gastrointestinal drugs. These include the prescription brands Xifaxan®, Uceris®, Relistor®, and Apriso®, as well as a pipeline of compounds set to reach the market in the near term.

During the first nine months of 2014, Salix trumpeted year-over-year increases in the numbers of prescriptions for its drugs ranging as high as 76% for Uceris and as low as 15% for Apriso. Salix is set to report fourth quarter and full-year 2014 results on March 2.

Xifaxan (rifaximin) is expected to emerge as key drugs driving the combined company’s growth, Valeant and Salix said, since the drug is expected to win near-term approval for a new indication, irritable bowel syndrome with diarrhea (IBS-D). The drug has a Prescription Drug User Fee Act (PDUFA) goal decision date of February 28.

At $159.7 million in Q3 net product revenue, Xifaxan accounted for 45% of Salix's total $354.7 million in net product revenue during the third quarter.

The combined company also expects to benefit once an oral version of Relistor (methylnaltrexone bromide) is approved; Salix said it expects to file the oral Relistor® NDA by the end of 2Q 2015. In September, Salix and partner Progenics Pharmaceuticals won FDA approval for an injection form of the drug for a new indication of opioid-induced constipation (OIC) in patients taking opioids for chronic non-cancer pain, triggering a $40 million milestone payment to Progenics. Relistor won its first FDA approval in 2008 for OIC in patients with advanced illness who are receiving palliative care, when response to laxative therapy has not been sufficient.

Valeant and Salix said the combined company is expected to generate more than $500 million in annual cost savings or “synergies.” Those synergies are expected within six months from the close of the deal, primarily from reductions in corporate overhead and R&D. As a Canadian-domiciled company headquartered in Laval, Quebec, Valeant can offer the combined company a lower corporate tax rate than the 35.2% shelled out by Salix during the first nine months of 2014.

The companies promised, however, that there was no reduction planned to Salix’s specialty sales forces or hospital, key account and field reimbursement teams, but added: “We will determine the optimal size of Primary Care Sales Force through the integration process.”

At $158 per share, Valeant’s acquisition is just  0.1% above the Friday closing price of $157.85, as news of a deal became widely speculated—but a roughly 73% premium over Salix’s 12-month low of $91.47 per share, reached on November 7, 2014, the day it reported third-quarter 2014 results. Those results included the disclosure that wholesaler inventory levels for its products were higher than previously announced. Salix also cut its 2015 revenue and earnings guidance to investors, to $1.4 billion and $5.20 per share, from $1.6 billion and $6.16 per share.

The deal consists of an all-cash tender offer valued at $10.1 billion for all outstanding Salix shares, followed by a merger in which each remaining untendered share of Salix common stock would be converted into the right to receive the same $158 cash per-share consideration as in the tender offer.

The remainder of the acquisition would consist of Salix debt and cash on hand. A syndicate of banks has agreed to provide fully-committed debt financing, led by Deutsche Bank Securities and HSBC, along with Mitsubishi UFJ Securities (USA), DNB Bank ASA and SunTrust Robinson Humphrey.

In acquiring Salix, Valeant fended off at least two rivals also seeking to buy Salix, Shire and Endo International. Valeant also continues a buying spree that last week included the acquisition of the prostate cancer drug Provenge among assets from the bankrupt Dendreon for $495 million.

Last year, Valeant tried to acquire Allergan, but the Botox maker instead agreed to be bought by Actavis in a $66 billion deal expected to close during the second quarter.

To fend off Valeant, Allergan sought to acquire Salix—but walked away after learning of the inventory woes, which led to the resignation of CFO Adam Derbyshire, disclosed in November, and the retirement of president and CEO Carolyn Logan, announced last month and effective January 30.

Previous articleReflecting on Fifty Years of Progress for Women in Science
Next articleMerck and NGM Partner to Develop and Commercialize Novel Biologics