Layoffs Expected at Medicis After the Sale

Phoenix Business Journal by Angela Gonzales, Senior Reporter

Expect some layoffs at Medicis Pharmaceutical Corp. in Scottsdale — and it looks like the founder of the publicly traded company (NYSE: MRX) might be one of them to go.

The specialty pharmaceutical company has agreed to be acquired by Montreal, Canada-based Valeant Pharmaceuticals Inc. for $2.6 billion.

In an investor conference call this morning, Valeant’s chairman and CEO Michael Pearson said he expects to achieve annual run rate cost synergies of $225 million within the first six months of closing the transaction in 2013.

Translation: Layoffs.

When one analyst pointed out that Valeant has 250 sales representatives and Medicis has 300, he asked what would be the right number of sales people for the combined company.

“It will be smaller than the combined number,” Pearson answered. “It will still be a significant number of reps, given all the products we have to sell.”

While he wouldn’t give a specific number of sales reps he would like to keep, Pearson told analysts that he will start off by picking the best person for each job.

“We’ll be agnostic in terms of where that best person comes from,” he said. “We want to have a very high performance dermatology company.”

Both Pearson and Medicis Founder, Chairman and CEO Jonah Shacknai, declined interviews with the Phoenix Business Journal to answer whether Shacknai will stay with the company he created.

It appears that Shacknai will not stay, based on two assessments.

One, usually press releases will spell out the new role for the CEO in the combined company. It didn’t this time.

Two, Pearson told investors in the conference call today that there are no employment agreements with Medicis senior management.

Still, the combined company’s commercial dermatology operations will be in Scottsdale and operate under the Medicis name as a division of Valeant. A portion of the company’s research and development efforts also will be maintained in Scottsdale, along with other R&D operations in Canada and Petalma, Calif.

Corporate support functions will be based primarily in New Jersey.

In the investor conference call today, Pearson told analysts that he has been looking to acquire Medicis for some time.

“This is the third time over the past 18 months we have had discussions,” he said. “We were able to agree on terms of this transaction over the last couple of weeks.”

In a Medicis investor call last month, one analyst asked if Medicis would be able to stay independent or consider selling to another company.

Shacknai said his first choice was to stay independent.

“But at the end of the day, we’re here to serve the interests of our shareholders,” he told the analyst. “My personal interests would never interfere with a thoughtful consideration that came along from a legitimate party.”

It’s a question his sales team asks him at every sales meeting, he said.

“As a public company, we have obligations to consider legitimate offers from credible parties,” Shacknai said. “We have to operate with an expectation that we are an independent company and will remain so.”

Yesterday’s announcement caused some movement on Medicis’ stock. It was trading around $43.59 this morning, higher than its 52-week high of $40.10, and nearly reaching the $44 per share price that Valeant is offering.

The deal is expected to close in 2013, depending on shareholder approval. If another company offers a higher bid and this deal does not go through, the break-up fee is 3.6 percent, Pearson said.

Usually the break-up fee is a percentage of the offer price, which would be a cost of $93.6 million to Medicis if it backs out of the deal with Valeant.

“If someone else ends up with Medicis, we get paid a break-up fee,” Pearson said. “We’re not planning on canceling the deal. There is no reciprocal break-up fee.”

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