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Bausch (BHC) Bids for Assets of Synergy Pharmaceuticals

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Bausch Health Companies Inc. (BHC - Free Report) announced that it has entered into a definitive agreement to acquire certain assets of biopharmaceutical Synergy Pharmaceuticals Inc. for approximately $200 million.

Earlier, Synergy Pharma had filed a voluntary petition for reorganization under Chapter 11 of the U.S. Code with the U.S. Bankruptcy Court for the Southern District of New York .

Financial Terms of the Acquisition

Pursuant to Section 363 of the Bankruptcy Code, Synergy will conduct a court-supervised auction and sale process where Bausch will serve as the "stalking horse bidder.”

Per the terms, Bausch (through its affiliate) has agreed to acquire most of Synergy's assets — intellectual property, customer and vendor contracts, accounts receivable and goodwill, among others. Bausch has also agreed to employ most of the current employees of Synergy Pharma.

However, Bausch’s bid is subject to higher or better offers, as other interested parties will have an opportunity to submit competing bids. Assuming the bid is successful, the transaction is expected to close in the first quarter of 2019.

Strategic Value of the Buyout

Bausch expects the buyout to be a strategic fit to its gastrointestinal business.  Synergy Pharma is focused on the development and commercialization of novel gastrointestinal (GI) therapies. The company’s lead drug, Trulance is a once-daily tablet approved for adults with chronic idiopathic constipation (CIC) and irritable bowel syndrome with constipation (IBS-C).

Bausch expects Trulance to complement its leading GI drug, Xifaxan, which is indicated for the treatment of irritable bowel syndrome with diarrhea (IBS-D) in adults and reduction in risk of overt hepatic encephalopathy (HE) recurrence in adults.

Moreover, the acquisition will add a promising candidate to Bausch’s pipeline, dolcanatide, which is being evaluated for various GI indications.

Our Take

We do not view the acquisition as an outright positive one. While the prospects of Trulance look good, the drug faces stiff competition from the likes of Allergan’s (AGN - Free Report) Linzess, among others, and hence might not reap the results expected by Bausch.

Sales of the drug have not been impressive. Moreover, Bausch still owes a lot of debt. The company was once an acquisition giant but some of them turned out to be unfavorable. Bausch’s stock has gained 16.1% in the year so far, against the industry's 13.8% decline.

 

After a tumultuous period, Bausch started a rebuilding process. The company recently changed its name. Even though it is still early to comment on the rebuilding process, the company’s efforts to sell non-core assets and pay down huge levels of debt are noteworthy. However, the dermatology market continues to be challenging.

Zacks Rank & Key Pick

Bausch currently carries a Zacks Rank #1 (Strong Buy). Another well-positioned stock in the healthcare sector is Gilead Sciences, Inc. (GILD - Free Report) , which sports a same rank as Bausch. You can see the complete list of today’s Zacks #1 Rank stocks here.

Gilead’s earnings per share estimates increased from $6.64 to $6.93 for 2018 over the past 60 days. Estimates for 2019 are also up by 30 cents.

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