Biovail, Valeant Pharmaceuticals combine to form Canadian specialty pharma company

Biovail, Valeant Pharma agree to combine

NEW YORK — 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 elsewhere. Up to 20 percent of the workers of the combined company will lose their jobs.

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 drugs for disorders of the central nervous system.

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 the proxy fight, and in the past three years it has made nine deals to acquire new drugs from companies including Amgen, Santhera Pharmaceuticals and Prestwick Pharmaceuticals. It also bought the U.S. rights to Wellbutrin XL.

Biovail’s strategy called for a $600 million investment in research between by 2012. 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. The Food and Drug Administration is scheduled to make a ruling on the drug in the fall, and if it is approved, Staccato loxapine could reach the U.S. market in early 2011.

The company is also testing Staccato loxapine 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.

The companies said their shared areas of focus include specialty central nervous system drugs, dermatology products, the Canadian market, and emerging markets. They also touted the potential savings from merging their operations. The two companies have about 4,400 employees combined, and Valeant CEO J. Michael Pearson said 15 to 20 percent of those jobs — or around 660 to 880 positions — will be eliminated.

Both companies’ boards have approved the combination, which is expected to close by year-end, subject to shareholder and regulatory approval. Valeant shareholders will get a dividend of $16.77 and 1.7809 shares of Biovail when the deal closes. The new company will keep Biovail’s corporate structure, so the deal qualifies as a tax-free reorganization for Valeant.

Biovail said the deal values its shares at a premium of 15 percent. Shareholder of Biovail will own 50.5 percent of the new company.

Biovail and Valeant will divide leadership of the company, which will be based in Mississauga, Ontario.

Pearson will be the CEO, and Biovail CEO Bill Wells will be non-executive chairman. The board will consist of 11 directors: 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 $1.93, or 13 percent, to $16.53 in afternoon trading. Valeant shares gained 93 cents, or 2 percent, to $46.80.

(This version CORRECTS the year Biovail’s research investment ends.)