In a bid to diversify its business and bolster its position in the generic and pain drug portfolios Endo Pharmaceuticals Holdings Inc. (ENDP), a US-based specialty healthcare solutions company which develops branded products and specialty generics, will purchase the privately-held Qualitest Pharmaceuticals (a generic company) for $1.2 billion in cash. Almost 40% of the acquiree company’s revenues are derived from its pain portfolio.
The deal has been approved by the Board of Directors of Endo Pharma. The deal is expected to close either by year-end or early next year. Endo Pharma anticipates the deal to be accretive to adjusted earnings in the first full year following its closure.
Endo Pharma intends to use its cash balance to finance the deal to the extent of $500 million, $300 million will be financed through its credit facility and the funding for the balance has been arranged. The merged entity, which is expected to have in excess of 3,000 employees, will provide more comprehensive healthcare solutions across its diversified business lines in Branded Pharmaceuticals, Generics, Devices & Services in key therapeutic fields including pain and urology.
Endo Pharma expects the acquisition to add approximately $400 million in annual revenues and $0.40 in annual adjusted earnings. Moreover, the revenues from the generics business of the merged entity is expected to grow by at least 15% over the next two years.
The deal is expected to result in cost synergies of $30 million by 2013 on an annualized basis. The synergies relate to procurement, distribution, manufacturing and other general and administrative costs.
We note that the impending acquisition of Qualitest, 40% and 17% of whose portfolio comprise controlled substances and liquids, respectively, is the second deal for Endo Pharma in a short period of time.
In August 2010, Endo Pharma agreed to acquire Penwest Pharmaceuticals Co. (PPCO) for approximately $144 million or $5.00 per share in cash. Through this deal, Endo Pharma will gain full access to a painkiller, Opana ER, which was being co-developed by the two companies. The drug aims to treat moderate to severe pain in patients requiring continuous opioid treatment. Earlier in the month, Endo Pharma completed an all-cash tender offer for all the outstanding shares of common stock of Penwest.
2010 Outlook Backed
Endo Pharma reaffirmed the 2010 projection for revenues as well as adjusted earnings. The company expects revenues between $1.63 billion to $1.68 billion. Adjusted earnings per share are expected in the range of $3.30 to $3.35.
Our Recommendation
Even though Endo Pharma has a Zacks #1 Rank (Strong Buy) in the short-term, we prefer to remain on the sidelines with a Neutral view on the stock in the long-run. The lack of estimate revisions, highlighting the absence of a clear directional pressure on the stock, further supports our long-term Neutral stance on Endo Pharmaceuticals.
ENDO PHARMACEUT (ENDP): Free Stock Analysis Report
Zacks Investment Research
