Endo Pharma's Big Acquisition Streak Ends With Latest Deal
12 April 2011 - 2:00AM
Dow Jones News
Endo Pharmaceuticals Holdings Inc. (ENDP) has reshaped its
portfolio and lessened its reliance on a slow-growing pain patch
through a recent acquisition streak, but will take a break from big
deals after adding urology-device company American Medical Systems
Holdings Inc. (AMMD) for $2.6 billion.
Endo has agreed to pay roughly $5 billion since early 2009 on a
variety of deals to add a urology franchise, bolster its existing
pain-management business and lessen the Lidoderm pain patch's sales
impact. Following the AMS deal--by far the largest in Endo's recent
purchasing streak--the company is more interested in small
"bolt-on" deals that augment existing businesses, Chief Executive
Dave Holveck said.
"The bricks are in place," he said in an interview. "The mortar
between the bricks will be areas of focus."
He also said the company will focus on integrating recent deals
and paying down debt.
Endo shares climbed on the deal news and were recently up 5.6%
to $43.12. Shares of AMS, which the deal values at $30 per share,
soared 32% to $29.51.
The deal for AMS includes $312 million in assumed debt. Standard
& Poor's said it is putting Endo's BB+ credit ratings on
CreditWatch with negative implications and expects to lower the
corporate rating by one notch to BB after the deal closes while
assigning a stable rating. That is two notches below an
investment-grade rating.
Still, S&P analyst Michael Berrian said the deal "will
likely improve Endo's business risk profile through enhanced
product and geographic diversity and, over the longer term, a
reduced dependence on patented products for revenue."
The main patented product at issue is Lidoderm, which grew sales
by about 2.5% last year after decreasing slightly in 2009, and
loses patent protection against generic competition in 2015. Endo's
total sales of $1.72 billion grew at a much faster 17% clip last
year as the company folded in newly acquired businesses, including
Qualitest Pharmaceuticals, a generics business added late in the
year for $1.2 billion.
Lidoderm accounted for 61% of Endo sales in 2008, but that
contribution has been shrinking steadily due to new deals. Endo
forecasted the pain patches' sales contribution will be less than
30% after the AMS deal.
Lidoderm is a "mature product" with limited market potential
that is growing sales in a low single-digit rate, said Julie
McHugh, Endo's chief operating officer, in the interview.
Endo projected the AMS business, in contrast, will grow sales in
a high single-digit range going forward, improving on its recent
growth rate. AMS sales rose 4.4% to $542.3 million last year.
"We strongly believe AMS is a high-growth asset," Holveck told
analysts on a conference call.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728;
jon.kamp@dowjones.com
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