Salix Pharmaceuticals Jumps on Takeover Rumours by Allergan

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Salix Pharmaceuticals Ltd. (SLXP) shares surged 15.5% after The Wall Street Journal claimed that Allergan Inc. (AGN) has approached Salix to acquire it. Salix also touched a 52-week high of $162.38 during the trading session on Aug 19.

The Wall Street Journal also claimed that Allergan’s decision to bid for Salix is to hinder Valeant Pharmaceuticals International Inc.’s (VRX) proposal to acquire Allergan.

Salix has several products in its portfolio. Salix’s lead product, Xifaxan performed disappointingly in the second quarter. Sales of the drug declined 6.7% year over year to $140.5 million. Salix also has Relistor and purgatives like MoviPrep, OsmoPrep and Apriso in its portfolio. The company also boasts of a strong pipeline.  

Salix’s position in the gastrointestinal market was strengthened in Jan 2014, when it acquired Santarus Pharmaceuticals. The acquisition added products like Zegerid, Uceris and Glumetza.

We note that in Jul 2014, Salix inked a merger agreement with Cosmo Technologies Ltd., which is expected to close in the fourth quarter of 2014. The company will enjoy lower tax rates on licensing agreements to be signed in the future due to a change of base, a strategy adopted by many healthcare companies in the recent past (read more: Salix-Cosmo to Merge in Tax-Saving Deal).

Investors will wait to see how the boards of both Allergan and Salix react to the rumour. Even if Allergan bids for Salix, the question still remains as to whether Cosmo Technologies will be a part of the deal.

Salix presently carries a Zacks Rank #3 (Hold). Other well-ranked stocks in the health care sector include Endo International (ENDP) sporting a Zacks Rank #1 (Strong Buy).

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