Bausch Health inks $200M ‘stalking horse’ deal for bankrupt Trulance maker Synergy

Could a still-recovering company buying a distressed one create a better business? Bausch Health apparently thinks so when it comes to Synergy Pharma, as it's agreed to pay $200 million for the now-bankrupt maker of Trulance.

After struggling for years to sell itself or find a patron, Synergy recently became more desperate, as weak sales of constipation treatment Trulance sales couldn’t satisfy the minimum revenue requirement set by investor CRG Servicing.

But the bankruptcy gave Bausch its chance to scoop up the business with a stalking horse bid of $200 million. Bausch is currently the highest bidder, but better offers—though unlikely—could emerge for Synergy during a court-supervised auction process.

Trulance is, of course, the centerpiece of the deal. Synergy never intended to commercialize the drug on its own and started a search for a buyer or partner back in 2015. But as no buyout offer "aligned with the company strategically or financially," the company was basically forced to go solo in 2017 after the FDA green-lighted Trulance as a treatment for chronic idiopathic constipation.

Ironically, Synergy at the time poached sales reps from Bausch (formerly known as Valeant) for the rollout. But even after another FDA nod in irritable bowel syndrome with constipation (IBS-C) early this year, the drug has been unable to challenge Allergan and Ironwood’s rival med Linzess. While Trulance garnered $11 million in third-quarter sales, Linzess’ revenues in the same period totaled $205 million.

Synergy in May re-embarked on a search for a buyer, but it admitted in October that the offers it had received were "significantly below the company’s current market value." It tried to renegotiate the term loan agreement with CRG, which mandates a minimum revenue requirement of $61 million. That last fight for survival apparently also was in vain. 

If Bausch’s bid is eventually successful, Synergy, together with Trulance and clinical drug dolcanatide, will be folded into the Canadian company’s GI-focused subsidiary, Salix Pharmaceuticals.

Bausch is itself still in recovery mode, trying to revamp its image under a new name post-Philidor marketing scandal and working to pay off debt it incurred over years of M&A frenzy. It was during that time that Valeant acquired Salix for $10 billion and bought then-bankrupt prostate cancer vaccine maker Dendreon, which Valeant offloaded to China’s Sanpower in 2017.

But apparently, Bausch thinks paying $200 million for Synergy is worthwhile at a financially stringent time.

"We believe Trulance is a natural complement to" the company's own Xifaxan, Bausch chairman and CEO, Joseph Papa, said in a statement, suggesting that "the scale and strength" of its sales footprint in GI and primary care could help turn the tide for Trulance.

However, Xifaxan sales, which in the third quarter made up 15% of Bausch’s quarterly total, could themselves be under serious threat from Cosmo Pharmaceuticals’ newly approved antibiotic Aemcolo, according to Wells Fargo analyst David Maris, who outlined the possibility in a recent note to investors.

Although Aemcolo is now only approved in travelers’ diarrhea, a smaller indication which Bausch said accounted for less than 10% of Xifaxan sales, the Cosmo treatment will come at a discount to Xifaxan and is already in phase 2 to potentially challenge Xifaxan in the all-important IBS-D field, Maris noted.

Bausch and Synergy now hope to wrap up the transaction in the first quarter of 2019. That might be the end of Synergy, but Bausch doesn’t intend to stop striking pacts, such as the co-promotion deal it has with Dova Pharmaceuticals on thrombocytopenia treatment Doptelet.

"As part of our transformation strategy, we will continue to seek strategic bolt-on opportunities that we believe will help drive long-term growth in our core businesses and for the company," Papa said.

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