Salix plays the long game with $2.6bn Santarus swoop

Salix Pharmaceuticals made no secret yesterday that its surprise swoop on Santarus was driven as much by a desire for an established primary care sales force as by an attraction to the California company’s products.

None of Santarus’s five marketed drugs has patent protection beyond 2020 – and four expire before the end of 2016 – making the $2.6bn price tag, a 36% premium over the pre-deal share price, look rich. But with Salix readying for broader approval of its lead product Xifaxan, it is betting on the benefits of a bigger and established sales force in place, primed to make the most of the new indications. If everything falls into place this deal should prove an effective use of Salix’s cash (see tables).

Wringing out sales

Salix is certainly not afraid of a challenge. In 2011 it bagged rights to Relistor, a constipation drug spurned by Pfizer that has yet to prove its worth (Progenics and Salix suffer as FDA blocks constipation drug, July 31, 2012).

And Xifaxan has been a long struggle. It reached the market in traveller's diarrhoea in 2004, lost a co-promote partner in the shape of Altana the next year, and was knocked back in the crucial non-constipation irritable bowel syndrome (non-C IBS) indication in 2011.

But sales are now growing strongly thanks to approval in a second illness, hepatic encephalopathy; in the third quarter revenues advanced 20% to $166m. Consensus forecasts see sales of $1.43bn in 2018, according to EvaluatePharma, a figure that does not fully reflect the potential impact of any IBS approval.

Carolyn Logan, chief executive of Salix, said on a conference call that around 30% of patients with hepatic encephalopathy were treated by primary care doctors – an audience to which the company currently has little access. Approval in IBS was always going to need a bigger presence in this area.

The acquisition of Santarus provides a profitable sales force “right out the gate”, she said, without the risk of having to grow one organically before any FDA decisions.

Top 10 products of the combined companies
Annual sales ($m)
Rank Product Therapeutic subcategory Company Patent expiry 2012 2014 2016 2018 CAGR Status
1 Xifaxan Anti-diarrhoeals Salix Pharmaceuticals 19/06/2024 514 745 1,082 1,423 18% Marketed
2 Uceris Gastro-intestinal anti-inflammatories Santarus 09/06/2020 - 129 238 333 n/a Marketed
3 Relistor Constipation agent Salix Pharmaceuticals 03/11/2017 33 55 115 176 32% Marketed
4 Apriso Gastro-intestinal anti-inflammatories Salix Pharmaceuticals 16/07/2021 70 146 175 167 15% Marketed
5 Fulyzaq Anti-diarrhoeals Salix Pharmaceuticals 30/09/2021 - 25 61 89 n/a Marketed
6 MoviPrep Laxatives Salix Pharmaceuticals 24/09/2018 65 78 85 88 5% Marketed
7 Solesta Incontinence treatment Salix Pharmaceuticals 12/12/2017 3 17 54 83 75% Marketed
8 Ruconest Enzyme replacement Santarus 19/12/2026 - 11 38 71 n/a Filed
9 Glumetza Anti-diabetics Santarus 19/07/2013 145 209 101 53 (15%) Marketed
10 Budo-San Gastro-intestinal anti-inflammatories Salix Pharmaceuticals 30/06/2018 - 9 27 42 n/a Phase III
Total sales 948 1,599 2,140 2,659 19%

Santarus’s GI-focused portfolio does reflect Salix’s own focus, without any real overlap. And despite the short patent life on most of its marketed drugs, the most valuable, Uceris in ulcerative colitis, is protected until 2020. Salix forecasts peak sales of $500m for the product, and believes it would benefit from a bigger sales force.

Ruconest, a treatment for hereditary angioedema that Santarus licensed in from Pharming, appears an outlier. With a regulatory decision pending in the US – a PDUFA date of April 16, 2014, has been set – Salix might as well wait to hear this verdict before deciding a course of action. But it is hard to see Ruconest finding a place in the portfolio.

The therapeutic fit and readymade sales force aside, analysts project a much more rapid pace of growth for Salix than Santarus over the next five years; the latter will be hit by its various patent losses. So to make this acquisition work, Salix needs to light a fire under newly launched Uceris – $20m in sales reported by Santarus for the third quarter is encouraging.

But even more importantly it needs to deliver expansions to its own products. An FDA panel will consider the company’s appeal about Relistor’s approval in opioid-induced constipation in patients with chronic pain next March, while data from a third phase III trial testing Xifaxan in IBS will read out in the second quarter next year, and allow a re-filing with the FDA.

The $2.6bn deal is being funded with $800m in cash and the remainder in debt; the company estimates it can reduce debt to 3x Ebitda within three years. Without the use of overseas tax breaks that have flattered other takeovers recently, Salix needs good old fashioned cash flow to fund this plan, and to help justify buying a readymade sales force over building one itself.

Financial projections ($m)
2013 2018 CAGR 2013-18
Salix Pharmaceuticals
     Total revenues 922 2,114 18%
     Net income - normalised 196 703 29%
Santarus
     Total revenues 365 552 9%
     Net income - normalised 114 129 3%

All data sourced to EvaluatePharma.

To contact the writer of this story email Amy Brown in London at AmyB@epvantage.com or follow @AmyEPVantage on Twitter

Share This Article