Salix Jumps on Santarus: New Powerhouse in the Gastrointestinal Space?

Salix Pharmaceuticals (SLXP) jumped nearly 18% last week on news that it agreed to acquire Santarus, Inc. (SNTS). The combined companies will be the leading specialty pharmaceutical company in the gastrointestinal (GI) space, with a particularly strong product line up in diabetes/insulin-resistance treatment.

SLXP develops and markets prescription pharmaceutical products and medical devices for GI diseases. The company focuses on licensing late-stage or under-marketed proprietary products and selling them through its GI-focused sales and marketing team.  SNTS currently markets five products in the GI space primarily focused on patients with diabetes and insulin resistance. SNTS’ product line includes GLUMETZA (metformin hydrochloride extended release), a specialty version of the generic metformin. GLUMETZA has gained popularity among endocrinologists and other physicians for patients with insulin sensitivity issues who cannot tolerate or metabolize generic metformin.

The combined company will have 22 products in the GI space, with no product overlap, and significantly reduces SNTS’s current reliance on ZEGERID, an ulcer medication. SNTS’s newly-launched UCERIS, a corticosteroid for ulcerative colitis, is also expected to get a boost as it will be sold through a much larger salesforce. The combination of a broad, value-added GI portfolio, coupled with a specialty GI salesforce and a primary-care sales effort, is likely to enable SLXP/SNTS to stand out relative to the more diversified pharmaceutical sales reps.

The acquisition is expected to be accretive to EPS in both 2014 and 2015. 2014 GAAP EPS is forecast at $3.85 per share, excluding revenue synergies, product launches or additional indications.

Under the terms of the deal, SLXP will acquire all of the outstanding common stock of SNTS for $32.00 per share in cash, or $2.6 billion. The $32.00 per share price represents an approximate 36% premium over Santarus’ November 6, 2013 closing price of $23.53 per share and an approximately 39% premium over Santarus’ average closing stock price for the prior 30-trading day period. The proposed transaction has been unanimously approved by the Boards of Directors of Salix and Santarus. The companies expect to close the transaction in the first quarter of 2014.