The year is less than a week old and the drugs sector’s first merger has been announced – Endo Pharmaceutical is to acquire Indevus.

Under the terms of the deal, Endo is looking to buy 100% of the outstanding shares of Indevus for approximately $370 million, or $4.50 per share in cash, representing a 45.2% premium over the latter’s closing price on January 5. Endo will also fork out an additional $267 million, or $3.00 per share, based upon the achievement of certain regulatory and sales milestones.

Those milestones will depend in part on the success of Nebido, a novel, long-acting injectable testosterone depot being developed for the treatment of male hypogonadism. Indevus is currently preparing a complete response for submission to the US Food and Drug Administration in the first half of 2009 to get the product approved.

Indevus also has high hopes for octreotide, an implant which is in Phase III trials for the treatment of acromegaly, which uses the firm’s Hydron polymer technology to deliver six months of the drug. Plans are also afoot to relaunch the bladder cancer treatment Valstar (valrubicin), which was withdrawn in 2002 due to impurities in the original formulation.

David Holveck, Endo chief executive, said that the merger “reflects our desire to expand our business beyond pain management into complementary medical areas where we can be innovative and competitive”. He said the new entity will benefit from the “health care and reimbursement trends that favour the consideration of new products to address unmet needs in urology and endocrinology”.

He added that these trends “demand that pharmaceutical companies become better health care partners with physicians and managed care organisations by offering a range of new products”. The enlarged group will market nine products through three specialty sales forces and “have the capability to develop innovative new therapies using a novel drug delivery technology”.

The transaction will be dilutive to the company's earnings in 2009 and is targeted to become accretive in 2010. Endo expects to achieve up to $40 million in cost savings.