Salix Pharmaceuticals announced Tuesday that it is merging with a subsidiary of Cosmo Pharmaceuticals, an Italian specialty drug company, in a deal that will significantly lower the Raleigh-based company’s tax rate.
Salix will continue to be headquartered in Raleigh but will re-incorporate in Ireland, allowing it to eventually reduce its long-term tax rate from the high 30 percent range to the low 20 percent range.
The company joins a growing list of U.S.-based companies pursuing so-called corporate tax inversions, under which a company acquires a company based in a country with lower tax rates in order to reduce their tax burden.
The tactic has drawn increased scrutiny from lawmakers in Washington, with President Barack Obama offering a proposal that would make such deals tougher to accomplish.
Salix executives defended the move during a conference call with analysts Tuesday evening. CEO Carolyn Logan said the company has a fiduciary duty to its shareholders to do what’s in their best interest.
“We feel like we have to make the best decisions within the current law to provide value for our shareholders and grow our business in as efficient and productive a way as possible,” Logan said. “And we believe that this transaction goes a long way toward enabling us to do that. So we believe we have every right to do the transaction and in fact we’re very excited about it.”
Salix, which sells drugs to treat gastrointestinal ailments, has 917 employees, including 303 in Raleigh. The company has been one of the Triangle’s best-performing companies in recent years. It has won regulatory approval for more than a dozen drugs and expects revenue to exceed $1 billion this year for the first time.
The company’s best-selling drug, Xifaxan, is approved to treat travelers’ diarrhea and a rare liver condition, and Salix is now seeking regulatory approval to use it to treat irritable bowel syndrome. Salix’s stock has risen nearly 250 percent over the past three years and closed Tuesday at $137.27.
Cosmo also focuses on gastrointestinal tract treatments, and has three products on the market and six in clinical development. Salix already had a deal to market one of the company’s drugs, a rectal foam called Uceris, for the U.S. market.
The merger will eliminate any need for Salix to pay future milestone and royalty payments for Uceris, and Salix executives estimate that product additions from the deal could result in additional annual sales of more than $1.1 billion.
“They are an excellent company, and we have known them for years,” Logan said of Cosmo.
Salix shareholders will own slightly less than 80 percent of the shares of the combined company, while Cosmo shareholders will own the rest. The deal is expected to close in the fourth quarter of this year.
Cosmo Pharmaceuticals is headquartered in Lainate, Italy, and is listed on the Swiss stock exchange. Salix is to become a fully owned subsidiary of Cosmo Technologies, which is based in Ireland and is entirely owned by Cosmo Pharmaceuticals.
Cosmo Tech will change its name to Salix Pharmaceuticals, and its shares will be traded on the Nasdaq stock exchange.
Salix’s executive leadership remains intact and will continue to be based in Raleigh. Cosmo’s CEO, Alessandro Della Chà, will join Salix’s board of directors.
Salix executives said the company’s new tax structure would help it compete for both licensing deals and acquisitions. Adam Derbyshire, Salix’s chief financial officer, said in the near term, the company expects its corporate tax rate to fall to about 25 percent, and then dip to about 20 percent.
“That doesn’t account for any future business development,” he said. “So any other future business development that we can tuck into this new structure that will further take that tax rate down in the future.”
Bracken: 919-829-4548; Twitter: @brackendavid