In an effort to speed up its growth, Knight Therapeutics Inc. says it is interested in buying assets that might be dumped by debt-challenged Valeant Pharmaceuticals International Inc. and Endo International PLC.
The Montreal drug distributor, launched by former Paladin Labs founder Jonathan Goodman, is keen to acquire Valeant's Canadian sales operation in its entirety or in chunks, Mr. Goodman said Friday. Knight is also interested in buying Endo's international business, including assets in Canada, Mexico and South Africa, he said.
At the top of his wish list is his former business, Paladin, which he sold in 2014 to Endo for $3.2-billion in cash and stock as part of a tax-inversion manoeuvre that saw U.S.-based Endo reincorporate in Ireland.
Knight was spun out as an independent entity as part of that deal, with Mr. Goodman as its chief executive officer. Its current business is small, with less than $2-million in revenue on a small menu of commercialized products in the third quarter, but its potential buying power is big: As of the end of September, Knight had $645-million in cash on its balance sheet and no debt.
Knight has communicated its interest to the chief executives of both Valeant and Endo, although no talks are talking place, Mr. Goodman said.
"So far [it's] only unrequited love," Mr. Goodman told The Globe and Mail. "They know of our keen interest, ability to quickly finance and rapidly close on a fair and reasonable transaction."
Knight's positioning comes at a difficult time for makers of specialty pharmaceuticals like Concordia International Corp., Mylan NV, Valeant and Endo, whose shares have faced pressure amid increased public scrutiny of their pricing strategies. Market turmoil will present opportunities for well-capitalized companies and private equity in the near term, said Laurentian Bank Securities analyst Joseph Walewicz.
Knight sees itself as a buyer in a situation where Valeant and Endo instigate a sales process under duress, Mr. Goodman said. He said he doesn't intend to make an unsolicited bid for the businesses because that typically means paying more.
Facing hefty debt loads built up by several years of binge buying, both Valeant and Endo have been exploring asset sales in recent months to reduce leverage.
At Laval, Que.-based Valeant, chief executive officer Joseph Papa has announced just one divestiture during his seven-month tenure and the reported breakdown in talks over the sale of its gastrointestinal drug unit Salix last month has sparked concern that the company will have trouble raising money to help pay down debt totalling $30-billion (U.S.). At Endo, chief executive officer Paul Campanelli is dealing with an $8-billion debt mountain amassed in a growth-by-acquisition strategy.
Valeant said its Canadian business is not for sale. "We have publicly designated [it] as core to us," said Scott Hirsch, Valeant's senior vice-president of business strategy.
Endo said it is assessing its businesses and hasn't made any decisions on monetizing assets. "As we get closer to our February earnings call, we'll provide more colour whether this is something that we will be considering," Mr. Campanelli told analysts Nov. 8. Heather Zoumas-Lubeski, an Endo spokeswoman, declined to comment further.
Knight has a supportive investor base confident in the company's ability to deploy capital to generate returns, analysts say.
Mr. Goodman, who suffered a traumatic brain injury in 2011 that nearly took his life, has reassembled much of the team he had at Paladin, including former chief of finance Samira Sakhia. They want to buy Paladin back as a way to buy the sales infrastructure and other expertise they would otherwise build over time. At current market multiples, Paladin would be worth about $380-million (Canadian) as measured by enterprise value to sales, Laurentian estimates.
"In a year from now, I may not need them because I'll have it," Mr. Goodman said of the manpower capability he intends to establish. "I will have built it. Now is the time."