NEW YORK (AP) — Canadian drugmaker Biovail Corp. and Valeant Pharmaceuticals International said Monday they are forming a new company under the Valeant name, capping Biovail’s recovery from falling sales and financial scandals.
Combined, the companies had $1.65 billion in revenue in 2009. They say their size, financial strength and product lines will allow for significant growth, including a bigger presence in North America and other countries. Biovail of Toronto makes the antidepressant Wellbutrin XL and extended-release pain drug Ultram ER. Valeant, based in Aliso Viejo, Calif., sells treatments for chronic illnesses and generic drugs.
A few years ago, Biovail was tainted by multiple accounting scandals and sliding sales. The company has settled allegations that it manipulated its financial results and paid doctors to prescribe its blood pressure drug Cardizem LA. It is also shifting its focus toward the development of central nervous system disorder drugs.
Biovail’s founder and Chairman and CEO Eugene Melnyk left the company in 2007 after the company was accused of accounting fraud. Biovail settled the allegations by making payments to the Securities and Exchange Commission in the U.S. and the Ontario Securities Commission in Canada. A case against three former Biovail executives, including Melnyk, is still in court.
Sales of Wellbutrin XL started to decline sharply in 2007 after generic competition reached the market. In early 2008 the company decided to concentrate on developing central nervous system disorder treatments. But Melnyk, who was still Biovail’s largest shareholder, didn’t approve and started a proxy fight with the company.
Biovail won a proxy fight against Melnyk, and since then it has made a series of deals to acquire new drugs from companies including Amgen, Santhera Pharmaceuticals, and Prestwick Pharmaceuticals. It also bought the U.S. rights to Wellbutrin XL to bolster its sales.
Biovail’s strategy called for a $600 million investment in research between 2008 and 2013. The company is currently developing five drugs for the central nervous system. The most advanced is Staccato loxapine, which is designed to treat agitation in patients with schizophrenia and bipolar disorder, and is also being tested against Parkinson’s disease psychosis, schizophrenia, and Alzheimer’s disease psychosis.
It is also testing drugs for Tourette Syndrome, movement disorders caused by Parkinson’s diseases drugs, and respiratory depression.
Both companies’ boards have approved the combination. Valeant shareholders will get a dividend of $16.77 and 1.7809 shares of Biovail when the deal closes. Biovail and Valeant will divide leadership of the company, which will be based in Mississauga, Ontario.
Biovail said the deal values its shares at a premium of 15 percent. U.S. shares of Biovail closed at $14.60 on Friday, while Valeant shares finished at $45.87. The company will keep Biovail’s corporate structure, so the deal qualifies as a tax-free reorganization for Valeant.
Biovail shareholders will own 50.5 percent of the new company.
Valeant Chairman and CEO J. Michael Pearson will be the CEO of the new company, and Biovail CEO Bill Wells will be non-executive chairman. The board will consist of 11 people: five members of Biovail’s board, five members of Valeant’s board, and one other independent Canadian resident selected by Valeant with Biovail’s agreement.
The new Valeant expects to pay a $1 special dividend by the end of 2010, after which it will no longer pay dividends.
The companies said they have secured a $2.8 billion loan from Goldman Sachs, Morgan Stanley, and Jefferies and Co. to help complete the deal.
Biovail shares rose $1.10, or 7.5 percent, to $15.70 in premarket trading.