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Expanding the pipeline
November 2014
EDIT CONNECT
SHARING OPTIONS:
DUBLIN, Ireland—Seeking in part to
gain a broader offering of urology and orthopedic products that are natural complements to its current men’s health and pain products, Irish company Endo International plc announced in early October a definitive agreement with Auxilium Pharmaceuticals Inc. to acquire the Chesterbrook, Pa.-based company for $2.6 billion.
Under the terms of the deal, Endo will acquire all of the outstanding shares of common stock of Auxilium for a per-share
consideration of $33.25 in a cash-and-stock transaction. The boards of directors of both companies have unanimously approved the transaction, including the
repayment and assumption of debt. The transaction will include an election mechanism for Auxilium stockholders to elect cash and stock, all-stock or all-cash
consideration, subject to proration in accordance with the terms of the definitive agreement. The per-share consideration represents a premium of 55 percent
to Auxilium’s closing price on Sept. 16, 2014, the day Endo made public its proposal for Auxilium.
Immediately prior to the entering into the merger agreement with Endo, Auxilium terminated its proposed merger agreement with QLT Inc., in accordance with the terms of the QLT merger agreement.
According to Endo, the addition of Auxilium’s leading men’s health products and development portfolio should “significantly enhance
Endo’s branded pharmaceutical business.”
“We are pleased to have reached this agreement with
Auxilium, which we believe will create value for both Endo and Auxilium shareholders, as well as for patients, customers and employees,” said Rajiv De
Silva, president and CEO of Endo. “By adding Auxilium’s complementary commercial portfolio, we believe this transaction is aligned with our
strategy of pursuing accretive, value-creating growth opportunities. We intend to leverage Auxilium’s leading presence in men’s health, as well
as our R&D capabilities and financial resources, to accelerate the growth of Xiaflex and Auxilium’s other products. We look forward to working with
the Auxilium team to achieve the growth and synergy potential of this compelling strategic combination.”
Xiaflex seems to be a big selling point in the acquisition. It is a collagenase clostridium histolyticum (CCH) biologic compound currently approved in
the United States, European Union, Canada and Australia for the treatment of adult Dupuytren’s contracture patients with a palpable cord and in the
United States for the treatment of adult men with Peyronie’s disease with a palpable plaque and penile curvature deformity. Xiaflex is currently in a
Phase 2a study for the treatment of edematous fibrosclerotic panniculopathy, commonly known as cellulite.
Leerink Partners, an investment bank specializing in healthcare, forecasts pre- and post-deal five-
year revenue compound annual growth rates of 3 percent and 8 percent, respectively. “Key to the improved growth outlook is Auxilium’s ability to
launch Xiaflex in Peyronie’s disease, where diagnosis rates remain low but Xiaflex offers a first-line alternative to surgery,” writes Jason
Gerberry of Leerink. “Based on a recent MEDACorp survey of urologic surgeons, specialists see Xiaflex as a first-line treatment and plan to prescribe
the drug to one-third of their patients within 12 months post-launch.”
Global research and consulting firm
GlobalData values Auxilium’s pharmaceutical assets at approximately $2.5 billion, which it
says is in line with Endo’s outlay. Largely driving the company’s valuation is Xiaflex with a net present value of $920 million, followed by
Testopel at $570 million and Stendra at $558 million, says Adam Dion, GlobalData’s analyst covering healthcare industry dynamics.
He notes that Endo intends to leverage its resources to optimize and drive increased adoption of three key Auxilium drugs,
which are Xiaflex, Testopel and Testim, the latter two both being hormone replacement agents.
“Testopel and
Testim generated combined sales of $271 million in 2013, and will supplement Endo’s hypogonadism therapy Fortesta,” Dion explains.
However, GlobalData believes Endo’s purchase price might be slightly on the high side, “given that Auxilium was
negotiating from a position of weakness.”
“Auxilium’s top-line revenue was flat in 2013, and the
company has been faced with slowing sales of Testim and witnessed a 50-percent year-on-year drop in sales from Xiaflex,” Dion notes. “The company
responded by announcing that it would cut about 190 jobs, or 30 percent of its workforce, as part of a plan to save $75 million per year. Auxilium was also
considering purchasing the Canadian eye drugmaker QLT in an effort to shave costs to a lower tax domicile, but recent changes to tax laws most likely
thwarted those efforts.”
Dion says that Endo’s motivation behind the deal centers on cash generation
and cost-cutting, with the company expected to achieve annual cost synergies of about $175 million. “This synergy run-rate is expected to be
immediately accretive in the first year after closing, and includes Auxilium’s reduction in annual operating expenses previously announced in
September,” he explains. “After the transaction, Endo will have a stronger balance sheet, increased cash flow with improved financial flexibility
to continue with its diversification strategy, transforming itself into a larger specialty pharma and medical device maker.”
Zacks Investment Research remarked in an analyst note, “We
believe it is a wise decision for Endo to acquire Auxilium Pharma. Endo has been struggling financially due to generic competition affecting its key
painkillers Lidoderm and Opana ER. The Auxilium Pharma acquisition will not only help Endo to offset the impact of genericization with new products but will
also help to diversify its portfolio.”
For his part, Adrian Adams, CEO and president of Auxilium, noted in
the news release about the acquisition deal that “We are proud of the work Auxilium has done to develop a portfolio of important products that are
improving the lives of patients to create significant stockholder value. We believe this transaction is the culmination of those efforts. On behalf of the
Auxilium board and management team, I want to thank our dedicated employees, engaged partners and strategic advisors for their continued hard work and
commitment, which have been instrumental in building Auxilium into the diversified specialty biopharmaceutical company it is today.”
Code: E111402 Back |
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