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Strategies & Market Trends : Speculating in Takeover Targets
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From: richardred9/28/2010 10:14:00 AM
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Endo to buy privately held Qualitest for $1.2 billion

On Tuesday September 28, 2010, 9:42 am

By Anand Basu and Rajarshi Basu

BANGALORE (Reuters) - Endo Pharmaceuticals Holdings Inc (NasdaqGS:ENDP - News) said it agreed to buy privately held generics company Qualitest Pharmaceuticals for about $1.2 billion in cash to expand its portfolio of pain drugs, marking its second acquisition in as many months.

The acquisition of Qualitest, owned by private-equity firm Apax Partners, will help Endo cover the revenue gap from its key pain drug, Lidoderm, which goes off patent in 2015.

"I think at first glance, it looks like an interesting deal for the company," said Collins Stewart analyst Louise Chen.

Lidoderm, used to treat post-shingles pain, has annual sales of about $700 million, she said.

Endo shares, which have gained 23 percent since it agreed to acquire Penwest Pharmaceuticals (NasdaqGM:PPCO - News) in August, were up 11 percent at $34.08 in morning trade on Nasdaq.

Endo, which makes and sells branded and generic drugs for the treatment of pain, overactive bladder, and prostate and bladder cancers, expects the deal to add about $400 million in revenue and 40 cents in adjusted earnings per share annually.

Endo also expects revenue growth of the combined generics business to be at least 15 percent over the next two years.

On a pro forma basis, the combined company would have revenue of about $2 billion in 2010, it said.

The new company will have a larger pipeline of generic-drug applications with 46 of them under active review in areas such as urology, oncology and hypertension.

Endo, which agreed to buy drugmaker Penwest last month and medical-device maker HealthTronics Inc in May, plans to fund the purchase with $500 million in cash from its balance sheet and by drawing down an existing $300 million credit facility. It has also secured financing for another $400 million.

Lazard acted as financial adviser to Endo on the deal, while J.P. Morgan Securities advised Qualitest.

Endo expects to close the deal late in the fourth quarter of 2010 or early in the first quarter of 2011.

Endo also reiterated its 2010 revenue outlook of $1.63-$1.68 billion and full-year adjusted earnings of $3.30-$3.35 per share.

(Reporting by Anand Basu and Rajarshi Basu in Bangalore; Editing by Aradhana Aravindan and Vinu Pilakkott)
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