Endo Health Solutions has signed a deal to buy Canadian pharma company Paladin Laboratories for $1.6bn, as it faces generic competition to its top-selling painkiller brands.
The deal will give Endo a much bigger presence in Canada, as well as a beachhead in emerging markets in South Africa and Latin America, and “accelerate the transformation into a leading specialty healthcare company”, said Endo’s chief executive Rajiv De Silva.
Paladin has a portfolio of pain, attention-deficit hyperactivity disorder (ADHD), urology and allergy medications and has been growing at a compound annual growth rate of 24 per cent over the last five years, pulling in C$179m ($171m) in 2012.
It also means that the combined company will be domiciled as an Irish public limited company, allowing it to take advantage of the country’s favourable corporate tax regime, something that also played a factor in Perrigo’s recent $8.6bn deal to buy Elan. Once completed, Endo shareholders will own around 77.5 per cent of the Irish plc, with Paladin investors holding the remaining 22.5 per cent.
“This deal will enhance our cash flow and earnings sustainability and is immediately accretive to our adjusted diluted EPS,” said De Silva. Endo also expects to make around $75m a year in after-tax savings from the merger.
Investors reacted favourably to the news, with shares in Endo rocketing nearly 30 per cent even though some analysts – including Jason Gerberry at Lerink Swann – said the deal looked “somewhat expensive”.
Paladin’s current president and CEO Mark Beaudet will continue in the role, but will report to De Silva. Co-founder Jonathan Ross Goodman – who had been president and CEO but has been on medical leave since an accident in 2011 – will serve as an advisor to the combined company.
The announcement was made on the same day that Endo published its third-quarter financial results, with better-than-expected revenues of $715m – down just under 5 per cent thanks to generic competition to Endo’s Lidoderm (lidocaine) patch for post-shingles pain – and earnings per share (EPS) of $1.34, up from $1.28 a year earlier.
Looking at the performance of Lidoderm, which fell 37 per cent, De Silva said that “prescription volumes shifted to the generic more quickly than we had expected”. The company is also facing possible loss of market exclusivity for another big brand – anti-inflammatory Voltaren Gel (diclofenac) – in 2014.
Endo is in the process of acquiring controlled drug specialist Boca Pharmacal for $225m, although De Silva noted that the US government shutdown has delayed approval of the deal. The company still hopes to finalise the acquisition by the end of this year.
Meanwhile, De Silva suggested other acquisitions may be on the cards, saying “they will continue to play a key role in maximizing our growth potential.”