Endo to buy American Medical Systems for $2.9B

Recognizing that the increasingly older U.S. population will need more urological care, Endo Pharmaceuticals, of Chadds Ford, said Monday that it would pay $2.9 billion to acquire American Medical Systems.

AMS is a leading provider of devices and services for pelvic health in men and women - the company's GreenLight laser is used to treat enlarged prostate glands. AMS is also a dominant player in the fields of penile implants for men and incontinence treatments for men and women.

In offering $30 cash per share - a 34 percent premium on AMS's Friday closing price - for all of AMS's shares, Endo is trying to further diversify its business, which has relied heavily on the pain medication Lidoderm, a drug that will lose patent protection in 2015.

Beyond the search for revenue and diversification, Endo executives see and hear the debate about the cost of health care.

"The lens we look through on that has three parts," Endo president and chief executive officer David Holveck said. "The economics of it has to be attended to, the access has to be more diversified, and the patient is going to be more like a consumer. Patients come with more information, and the patients are going to be paying more of the co-pay.

"We have to be able to commit to the patient like a physician commits to a patient to get the best outcome. The payer wants a better outcome and only wants to pay for the outcome. We think we need to be a company with the size and scope to offer the full continuum of care in that area."

If shareholders approve the deal, it would likely close in the third quarter of this year. Endo Pharmaceuticals Holdings Inc. stock closed at $41.06, up 21 cents.

American Medical Systems Holdings Inc. shares rose 32 percent, or $7.17, to $29.50.

Endo would also take on $312 million of AMS debt. Endo chief financial officer Alan Levin said the company hoped to save $50 million by the end of 2013 through manufacturing and procurement efficiencies.

Endo would expand to about 4,000 employees spread over nine states, from about 3,000 now.

Holveck said there could be increased staffing in Chadds Ford in areas of human resources, finance, and the support of clinical trials.

By acquiring AMS, which is based in Minnetonka, Minn., Endo is moving further into the urology sphere, where it hopes to generate $1 billion in sales, and away from its reliance on Lidoderm. That drug accounted for 46 percent of reported revenue in 2010, according to Levin. Once AMS is in the fold, that would drop to less than 30 percent. Similarly, the device-and-services sector would increase from about 10 percent to 30 percent of the business.

"We see a lot of upside in this space and like the patient demographics that play to the aging population," Julie McHugh, Endo's chief operating officer, said in the conference call with analysts.

Lauren Migliore, an equity analyst with Morningstar Inc. who tracks Endo, said that the purchase would help Endo but would not produce greater long-term shareholder value by itself.

"They are trying to buy growth," Migliore said.

The companies did say they hoped their efforts at producing new drugs and devices would lead to better outcomes - and profit.

AMS was founded by urologists in 1972. Anthony Bihl, president and chief executive officer of AMS, said he would remain with the new company to help with integration.

"Endo's commitment to innovation is very consistent with AMS," Bihl said. "We look forward to helping pull together and make this a one-plus-one-equals-three in the transition."