Valeant Pharmaceuticals International has forged its biggest deal since a “rebirth” of the Costa Mesa drug maker slightly more than a year ago.
The company last week said it plans to buy Xcel Pharmaceu-ticals Inc., a neurology drug developer based in San Diego, for $280 million plus expenses, including $44 million of debt retirement.
The deal helps Valeant expand in one of the key areas that Chief Executive Timothy Tyson and Chairman Robert O’Leary have targeted for growth.
“It strengthens their share in the neurology market,” said Rich Watson, an analyst with Chicago-based investment bank William Blair & Co.
The deal is part of Valeant’s effort to put in place “an infrastructure in the U.S. that is capable of selling product, which the old management wasn’t,” Watson said.
Valeant’s former management included founder and former chief executive Milan Panic, who left the company a few years ago after losing a proxy battle with dissident shareholders.
The company, which changed its name from ICN Pharmaceuticals Inc. to Valeant in 2003, has aggressively shed its Eastern European operations,a legacy of Panic, a Serbian native and former prime minister of Yugoslavia.
Tyson wasn’t available for comment last week. But he and former chief executive O’Leary have rebuilt Valeant with an eye to strengthening its presence in the U.S. and in three key markets: neurology, infectious diseases and dermatology.
“The Xcel acquisition provides Valeant with access to an excellent market product portfolio and a pipeline product with significant market potential in the U.S. and our key foreign markets,” Tyson said in a statement.
Valeant made several smaller deals last year, including a $38 million buy of London-based Amarin Corp.’s U.S. unit. The acquisition gave Valeant the rights to sell Zelapar, a drug to treat Parkinson’s disease.
Valeant also paid $13 million to Switzerland’s Roche Holdings AG for the U.S. rights to Tasmar, another Parkinson’s treatment.
The size of those deals raised eyebrows among some Wall Street analysts. They fretted that Valeant wasn’t moving fast enough to offset slumping sales of its core hepatitis C liver disease drug ribavirin.
Xcel had sales of $46 million in the nine months through Sept. 30. Its products include Diastat and Mysoline, both used to treat epilepsy, and Migranal, a nasal spray to treat acute migraine headaches.
Valeant’s pipeline also would gain Retigabine, Xcel’s drug candidate for treating epilepsy that is in its third phase of clinical trials. Valeant said it would market Retigabine in the U.S. and some global markets once it receives regulatory approval.
Xcel licensed Retigabine from Viatris GMBH, a German drug maker, a year ago.
The Xcel buy stands to add 94 sales staff specializing in neurological drugs to Valeant’s sales force, boosting it to 200 people.
The boards of Valeant and Xcel have approved the deal, which still needs regulatory approval.
The Xcel buy “makes synergistic sense as it will provide Valeant with additional neurology sales reps to help with the launch of Zelapar for Parkinson’s disease, which is anticipated in mid-2005,” said Deborah Knobleman, an analyst with Minneapolis-based US Bancorp Piper Jaffray, in a report.
Knobleman also said the acquisition gives Valeant a big enough sales staff that it could set aside up to 125 salespeople to pitch its hepatitis C drug Viramidine when it’s ready to launch.
Viramidine is critical for the drug maker. It’s Valeant’s next-generation drug for treating hepatitis C. Ribavirin has been Valeant’s bread-and-butter drug for the past several years. But sales have slumped of late with competing generic versions of the drug eating into revenue.
As for Xcel’s epilepsy treatment Retigabine, William Blair’s Watson said that while the drug won’t be ready until 2009, it diversifies Valeant’s mid-to-late stage product pipeline. That will give it another drug with high revenue potential, he said.
Xcel was founded in 2001 by former executives of Dura Pharmaceuticals, another San Diego-based drug company that’s now part of Ireland’s Elan PLC. Xcel filed for initial public offerings in 2002 and 2003, but withdrew each time.
The company yanked its last offering filing in April, citing poor market conditions.
Xcel has raised at least $100 million in three rounds of private financing. After Dura was bought by Elan, Xcel paid some $148 million to Elan for the rights to market Diastat and Mysoline, according to the San Diego Union-Tribune.
Like many specialty drug companies, Xcel often markets drugs that have been developed by others, rather than discover drugs on its own.
