Endo diversifies with a $1.2B acquisition

Endo Pharmaceuticals Inc., a Chadds Ford-based company heavily invested in branded pain medications, took a bold step in expanding and diversifying its portfolio Tuesday by paying $1.2 billion to acquire Qualitest Pharmaceuticals, a privately-held manufacturer of generic drugs.

Qualitest, based in Huntsville, Ala., manufactures more than 600 products and is the sixth largest U.S. generics company as measured by prescriptions filled. Like Endo, Qualitest has a large focus on pain medications.

The purchase will provide Endo a significant push into the $13.5 billion-a-year generic prescription market in the United States. Endo heretofor has chiefly made branded pain medications and is primarily known for its leading product, Lidoderm.

The addition of Qualitest is the latest move by Endo, which has been dramatically reshaping itself through acquisitions.

In August, the company spent $144 million to purchase Penwest Pharmaceuticals Co., it's longtime drug development partner. That followed a $223 million purchase of HealthTronics Inc., maker of medical devices and provider of urology services, in May.

"The acquisition of Qualitest accelerates our stated strategy of building a diversified health care company, better able to respond to the changing economics that drive the U.S. health care environment," David Holveck, president and chief executive officer of Endo, said in a statement. "The transaction provides Endo with an enhanced competitive position and critical mass in the generics market."

The deal ensures Endo has three strong legs - medical devices and services, generic drugs and branded pharmaceuticals - on which to build its future, Holveck said.

"You have to have a diverse portfolio," he said. "And that is what we are doing."

The purchase is an all cash deal. Endo will provide $500 million and finance the rest. J.P. Morgan and the Royal Bank of Canada will provide $400 million of the financing.

Endo is buying Qualitest from Apax Partners, a private-equity firm based in New York that has owned its since 2007.

Wall Street offered its approval of the deal, with Endo's stock jumping 8.3 percent from $30.61 to $33.15 on the news. Endo's stock is up almost 65 percent since June.

Endo anticipated that the purchase would add about $400 million in annual sales and another .40 cents in profits per share. Endo has predicted it will see between $1.63 billion and $1.68 billion in revenue this year, without Qualitest.

Endo started in 1920 as a family-run pharmaceutical company originally called Intravenous Products of America, Inc. Its name was changed to Endo in 1935. Among its early and best known products are the painkillers Percodan and Percocet.

Holveck came to Endo in 2008 from Johnson & Johnson with the stated goal of making Endo a more broad-based, diversified firm.

Endo currently has about 2,400 employees at facilities in Chadds Ford, Westbury, N.Y., and Cranbury, N.J.

Qualitest, with about 600 employees, has facilities in Huntsville, Ala., and Charlotte, N.C., both of which Endo says it intends to keep.

About 40 percent of Qualitest's $400 million in annual revenues come from pain medicines, which has been a core business for Endo over the years.

Qualitest's chairman and chief executive is Marvin Samson, a Philadelphia native. He helped start two South Jersey companies - Elkins-Sinn Inc., a generic injectable drug maker, and later Marsam Pharmaceuticals Inc., another injectables maker. In June 2009, the University of the Sciences renamed its College of Health Sciences to honor Samson, an alum, donor and trustee.

Julie McHugh, chief operating officer for Endo, said Samson would stay on as a consultant to help integrate the two companies management teams.