Valeant-Actavis talks break down

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For the past five years, Michael Pearson and Paul Bisaro have each been on a mission to build their respective upstart pharmaceutical firms into global leaders.

Now their two acquisitive, debt-laden firms – Montreal-based Valeant Pharmaceuticals International Inc. and Actavis Inc. of New Jersey – are reportedly at an impasse in talks to combine their two companies. The deal would create a global giant in the generic and specialty pharmaceutical business, with combined revenues of more than $12.5-billion.

Reports over the weekend cited informed sources as saying talks had broken down over a deal that would see Valeant, with a market value of more than $22-billion, acquire Actavis for more than $13-billion in an all-stock merger.

It would be by far the largest deal for Valeant, which was a struggling specialty pharmaceuticals firm based in California until Mr. Pearson, a London, Ont., native, joined as CEO in 2008, putting into practice a growth strategy he had mapped out for the company a year earlier while advising the firm as a consultant.

Since then, he has completed more than 50 deals, including a landmark merger with Mississauga-based Biovail Corp. in 2010 – a deal sought by Mr. Pearson so he could take advantage of the company's Canadian headquarters and ultra-low corporate tax structure. He has more than tripled the company's debt, to $11-billion, in the past two years – a fact that hasn't bothered investors, who have made Valeant one of Canada's hottest stocks.

Under Mr. Pearson's leadership, Valeant has made a practice of buying other pharma companies, slashing costs and dramatically scaling back research and development spending. The company has focused on niche therapies such as dermatology and podiatry, which face little competition from pharmaceutical giants and where costs are borne by individuals and private plans, not financially strained public health care systems.

But Mr. Pearson has also acknowledged the company, forecast to post more than $4.4-billion in sales this year, is perpetually changing and its strategy could evolve. That might explain his interest in Actavis, which has a specialty pharmaceuticals business but is much more dependent on generic drugs, selling knock-off versions of top-selling mainstream treatments including cholesterol-reducing Lipitor, analgesic Percocet and contraceptive Alesse.

Mr. Bisaro, who is also a former management consultant as well as a 20-year veteran of the pharmaceutical industry, has also been a favourite of investors. Actavis has vastly outpaced both the S&P500 and the Dow Jones U.S. Pharmaceuticals Index over the past five years.

Like Mr. Pearson, Mr. Bisaro has transformed Actavis since taking over as CEO of the company – then called Watson Pharmaceuticals, Inc. – from co-founder Allen Chao in 2007. At that time, Watson derived 99 per cent of its $2.5-billion in revenues from the U.S. Mr. Bisaro's goal was to turn the company into a global generics firm, which he accomplished with a slew of generic drug launches and acquisitions – capped off by last year's $5.6-billion purchase of Swiss-based Actavis. The company is on course to post revenues of $8.1-billion this year, while its debt of $6.4-billion has increased six-fold since the end of 2011.

Neither Valeant nor Actavis has acknowledged the talks.

"We do not comment on market rumours or speculation so cannot provide any comment," said Laurie Little, a spokeswoman for Valeant.

One clue, however, to Actavis's interest could lie in comments Mr. Bisaro made recently to Bloomberg Businessweek, when he complained about U.S. tax structure, saying "we're forced to move more jobs overseas so we can get a lower tax rate and be competitive." As a Canadian company, Valeant is able to take advantage of more flexible tax rules in this country, which, unlike the U.S., allows companies to move intellectual property and profit centres to low-tax jurisdictions and repatriate the profits without further taxation.

News that talks have broken down is not necessarily a sign that a deal is dead; talks between Biovail and Valeant twice fell apart before a final agreement was reached.

On the other hand, Mr. Pearson has boasted that he actively pursues multiple deals at the same time and has little patience for drawn-out negotiations. "We won't negotiate for weeks and weeks and weeks," he said in an interview last fall. "We make decisions quickly."

With files from news services.