In the latest deal in the specialty pharmaceuticals market, Endo International has agreed to acquire Par Pharmaceutical for $8 billion. What are the implications for the companies and the specialty pharmaceutical market as a whole?DCAT Value Chain Insights (VCI) takes an inside look.
The specialty pharmaceutical company, Endo International plc, has agreed to acquire the privately held specialty pharmaceutical company, Par Pharmaceutical Holdings, Inc., for $8.05 billion, including assumption of Par debt. The transaction has been unanimously approved by the boards of directors of Endo and Par and is supported by the management teams of both companies. The move, according to Endo, would create a specialty pharmaceutical company that would include a growing generics portfolio that Endo said would put it among the top five as measured by US sales. So what would a combined Endo and Par mean for the companies and the overall market?
Examining the deal
Endo's bid to acquire Par is based on a purchase price that consists of approximately 18 million shares ($1.55 billion of value based on the 10-day volume weighted average share price of Endo ending on May 15, 2015) of Endo equity and $6.50 billion cash consideration to Par shareholders. The transaction is expected to close in the second half of 2015 and is subject to regulatory approval in the US and certain other jurisdictions, as well as other customary closing conditions.
The move, according to Endo would create a specialty pharmaceutical company that would include a growing generics portfolio that Endo said would put it among the top five as measured by US sales. The Par portfolio includes nearly 100 products in multiple dosage forms and delivery systems, including oral solids, oral suspensions, injectables, and high barrier-to-entry products. Par offers a pipeline consisting of more than 200 abbreviated new drug applications (ANDAs), 115 of which were filed with the US Food and Drug Administration (FDA) as of December 31, 2014. Approximately 33% of the filed ANDAs are potential first-to-file or first-to-market opportunities, and 75% of the overall development portfolio consists of Paragraph IV and first-to-file programs. It is expected that the Par R&D pipeline could generate approximately 20 to 25 ANDA filings each year in 2015, 2016, and 2017, according to Endo.
Endo reported 2014 revenues of $2.88 billion. Its US generics business is the company's largest segment, which posted revenues of $1.14 billion in 2014. US branded pharmaceuticals accounted for $969 million, devices ($497 million), and international sales ($270 million). Overall, the company posted a net loss of $721 million in 2014. Endo employs approximately 5,000 people. Par Pharmaceutical, based in Chestnut Ridge, New York was taken private by an affiliate of the private equity firm TPG Capital in 2012. It posted revenue of $1.31 billion in 2014 and employs 1,600 people. Par Pharmaceutical Holdings consists of Par Pharmaceutical, which is the company's largest segment with 2014 sales of $1.24 billion. Par Pharmaceutical includes generic products marketed under Par Pharmaceutical and generic and sterile products marketed under Par Sterile. The focus of Par Pharmaceutical is to develop, license, manufacture, market and distribute generic prescription drugs in an extensive range of dosage forms and delivery systems, including immediate-release oral solids and alternate dosage forms, such as extended-release oral solids, injectables, topicals, nasal sprays, ophthalmics, otics, films and transdermal patches. Its top 10 products accounted for approximately 50% of its 2014 revenues. Its specialty pharmaceutical business, Par Specialty accounted for $67 million in 2014 sales. Key products are Nascobal(cyanocobalamin, USP) nasal spray and Megace ES (megestrol acetate) oral suspension to treat anorexia, cachexia or any unexplained significant weight loss in patients with a diagnosis of AIDS.
Given the complementary nature of the companies' generics portfolios and operations, Endo estimates the transaction will generate $175 million in operational and tax synergies that are expected to be realized within the first 12 months following the completion of the transaction while strategically preserving investment in the R&D pipeline to help drive long-term organic growth.
On the acquisition path
Endo’s pursuit of Par Pharmaceutical follows an unsuccessful effort by Endo to acquire the specialty pharmaceutical company, Salix Pharmaceuticals, which was eventually acquired by Valeant Pharmaceuticals for $15.8 billion. In March 2015, Valeant had raised its offer to acquire Salix, topping Endo’s bid to acquire Salix. The deal followed Valeant's unsuccessful efforts to acquire the specialty pharmaceutical company, Allergan, in 2014, which was later acquired by Actavis, a deal that was completed earlier this year.
Endo has been actively building its position in specialty and generic pharmaceuticals through a series of large-scale and smaller-scale acquisitions. It made two-large scale acquisitions in 2014. The first, completed in February 2014, was the $2.87 billion acquisition of Paladin Labs, a specialty pharmaceutical company headquartered in Montreal, under which the two companies merged to form a new company, Endo International plc, headquartered in Dublin, Ireland (Endo’s US headquarters are in Malvern, Pennsylvania). Paladin Labs' focus was on acquiring or in-licensing innovative pharmaceutical products for the Canadian and world markets; the company had 60 marketed drugs at the time of the acquisition with key therapeutic areas being treatments for attention deficit hyperactivity disorder, pain, urology and allergy. In addition to its Canadian operations, Paladin Labs had a controlling stake in Laboratorios Paladin, S.A. de C.V. in Mexico and a 61.5% ownership stake in publicly traded Litha Healthcare Group Limited in South Africa.
In January 2015, Endo completed its $2.6 billion acquisition of the specialty pharmaceutical company, Auxilium Pharmaceuticals Inc., in a move to grow its US branded pharmaceuticals business. Auxilium had initially rejected a $2.2 billion offer made by Endo to acquire the company and had opted to proceed with a proposed merger agreement made in June 2014 with QLT, a Canadian-based biotechnology company focused on developing orphan ophthalmology products. Auxilium, however, changed course and terminated its merger agreement with QLT and accepted instead Endo’s offer. Endo’s acquisition of Auxilium strengthened Endo's position in the US branded pharmaceuticals market with products in urology and orthopedic products to complement Endo’s position in men's health and pain products. At the time of the closed acquisition, Auxilium had 12 approved products. Among its products in the US, Auxilium markets Edex (alprostadil for injection), an injectable treatment for erectile dysfunction; Osbon ErecAid, a device for aiding erectile dysfunction; Stendra (avanafil), an oral erectile dysfunction therapy; Testopel (testosterone pellets), a long-acting implantable testosterone replacement therapy; Xiaflex (collagenase clostridium histolyticum) for the treatment of Peyronie's disease and Xiaflex for the treatment of Dupuytren's contracture; Testim (testosterone gel) for the topical treatment of hypogonadism; and an authorized generic version of Testim (testosterone gel) with its partner Prasco, LLC. Auxilium also had programs in Phase II clinical development for the treatment of frozen shoulder syndrome and cellulite.
Endo has made other targeted acquisitions, including moves to expand its generics and international businesses. In 2014, to grow its US generics business, Endo acquired DAVA Pharmaceuticals, Inc., a privately held company specializing in generic pharmaceuticals, with a portfolio of marketed, pre-launch and pipeline products, for $575 million in cash, with additional cash consideration of up to $25 million contingent on the achievement of certain sales milestones. Also in 2014 to to expand its generics business, Endo acquired Boca Pharmacal for $237 million.
To grow its international business, Endo acquired in 2014, Grupo Farmaceutico Somar, a privately owned specialty pharmaceuticals company based in Mexico City. Earlier this month, Endo agreed to acquire a broad portfolio of branded and generic injectable and established products focused on pain, anti-infectives, cardiovascular, and other specialty therapeutics areas from a subsidiary of Aspen Holdings, a South Africa-based company that supplies branded and generic products in more than 150 countries. Under the terms of the agreement, Aspen Holdings will receive a one-time payment of approximately $130 million subject to usual and customary closing adjustments. Endo expects the transaction to close in third quarter 2015. The acquired portfolio generated revenue of approximately $28 million of revenue during the fiscal year ended June 30, 2014 and further includes a pipeline of products in various phases of development that are expected to launch over the next several years.
The Aspen acquisition is part of Endo's strategy to increase its international presence. The company's goal is to grow its international pharmaceuticals business to represent 25% of Endo's corporate revenues in the longer term. The portfolio of products to be acquired from Aspen Holdings will be incorporated into Endo's Litha Healthcare Group portfolio and is expected to increase Litha's pro-forma 2015 revenues by 30% and pro-forma pharmaceutical product revenues by 60%.
As the company makes acquisitions to optimize is product portfolio, it is also adjusting its businesses. In March 2015, the company agreed to sell its device business, American Medical Systems Holdings (AMS), which provides devices and therapies for treating male and female pelvic health conditions. The company agreed to sell the men’s health and prostate health components of the AMS business to Boston Scientific Corporation for up to $1.65 billion, with $1.6 billion in upfront cash. Endo is also eligible to receive a potential milestone payment of $50 million in cash conditioned on Boston Scientific achieving certain product revenue milestones in 2016. The transaction with Boston Scientific Corporation is expected to close in the third quarter of 2015, subject to customary conditions, and regulatory approvals. In addition, Endo is currently evaluating strategic alternatives for the women’s health component of the AMS business.
Also in 2014, Endo sold its branded pharmaceutical drug discovery platform to AsanaBioSciences, LLC, an independent member of the Amneal Alliance of Companies. The deal included an upfront payment as well as milestones on the achievement of certain development objectives. Endo initiated the exploration of strategic alternatives for the portfolio of early-stage drug discovery assets in 2013 as part of the company's portfolio optimization process. The sale includes multiple early-stage drug discovery and development candidates in a variety of therapeutic areas, including oncology, pain and inflammation, among others.
Endo's bid to acquire par is the latest in a series of proposed and completed mergers and acquisitions in the specialty and generics markets. Chief among them is Teva Pharmaceutical Industries’ $43 billion bid to acquire Mylan, a deal which Mylan has thus far rejected as it seeks to acquire the specialty, generic, and over-the-counter drug company, Perrigo. Pfizer’s proposed $17 billion acquisition of Hospira, which includes Hospira’s generic injectables business and biosimilar portfolio is another deal, which is expected to close in 2015. Actavis’ acquisition of Allergan, an approximate $70 billion deal completed in 2015, and Actavis’ $28 billion acquisition of Forest Laboratories, further diversified Actavis in specialty medicines although generics still constitute an important part of its portfolio. Another key deal completed in 2015 was Sun Pharma’s acquisition of Ranbaxy Laboratories. Despite these proposed and completed deals, however, the global generics market remains highly fragmented, with only approximately 25% of the market share occupied by the top 10 leading players, according to data from IMS. Leading generic players include Teva, Sandoz (the generics arm of Novartis), Mylan, Actavis, Sun Pharma, Aspen, Hospira, Fresenius, Lupin, Dr. Reddy’s Laboratories, Cipla, STADA, Abbott (which divested its non-US developed specialty and generics businesses to Mylan in 2015), based on a company and industry estimates.