Shares in Endo Pharmaceuticals have received a boost on news of its plans to buy US generics giant Qualitest Pharmaceuticals for $1.2 billion in cash, giving the firm a stronger foothold in the pain market.
Qualitest, the sixth largest generics company in the US (by number of prescriptions filled), brings a broad range of generics to Endo as well as an extensive pipeline of abbreviated new drug applications, with at least 46 currently under active regulatory review across multiple therapeutic areas, such as pain and urology.
Further explaining the strategy behind the move, Endo said it believes Qualitest will bring “critical mass” to its existing generics business, significantly boosting sales and earnings growth, as well as further diversify business lines and, in particular, boost its portfolio of pain drugs.
The US pain market is currently worth a whopping $15 billion, more than 90% of which is taken up by generic drugs, and given that large chunk of Qualitest’s revenues (40%) stem from products to treat pain, Endo notes that the acquisition will substantially enhance its position in the market.
“We believe that this transaction will accelerate and diversify our revenues and earnings streams, while also providing our partners in the industry with a wider range of products and services at multiple value points,” said David Holveck, Endo’s president and chief executive, and he claimed the combined group will be “well positioned to strengthen our relationships with physicians and payment providers to deliver better outcomes for patients and to meet the demands of the evolving healthcare system in the US”.
The company is expecting the transaction to be immediately accretive to adjusted earnings per share in the first full year post merger, and anticipates that, on deal closing, Qualitest will add sales of around $400 million and $0.40 in adjusted diluted earnings per share. In addition, the combined generics business should also see revenues growth of at least 15% over the next two years, it said.
Reaction to the deal seems to have been largely positive so far. Reuters reported Collins Stewart analyst Louise Chen as saying of the move: "At first glance, it looks like an interesting deal for the company," while Caris & Co analyst James Molloy told Bloomberg "any time you can add as much in earnings per share as they’re doing without paying too much, it’s a smart acquisition”.
Last month Endo announced plans to buy drugmaker Penwest Pharmaceuticals for around $144 million.