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NEW YORK — Drug developer Endo Pharmaceuticals Holdings Inc. said Tuesday it is buying Qualitest Pharmaceuticals for $1.2 billion in a move to diversify its business and strengthen its position in the generic and pain drug markets.
Endo said that 40 percent of Qualitest's revenue come from pain products, making it a "natural extension" of Endo's position. Endo already makes the Lidoderm topical pain treatment patch and the pain treatments Opana and Percocet.
The buyout also adds a broad range of generic products to Endo's portfolio along with pain products. The move comes as the company begins to prepare for potential competition on Lidoderm. Key patents on that drug are set to expire starting in 2015, which could open up the market for generic competition. Lidoderm had sales of $196.1 million during the fiscal second quarter ended in June.
Shares of Endo rose $2.75, or 9 percent, to $33.36 in morning trading and earlier reached a new 52-week high of $34.26.
The purchase is the company's second acquisition in two months. Endo expects to complete its $144 million buyout of Opana ER partner Penwest Pharmaceuticals Co. by the end of the year. Penwest has worked with Endo on Opana ER's development and marketing since 1997 and receives royalty payments.
"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," said Endo President and CEO David Holveck in a statement.
Endo, based in Chadds Ford, Pa., said it will finance the buyout with $500 million in cash, $300 million in existing credit, and up to $400 million in new financing.
It plans to retain Qualitest's facilities in Huntsville, Ala., and Charlotte, N.C., as well as its own facility in Westbury, N.Y. The combined companies will have about 3,000 employees. About 40 percent of Qualitest's portfolio of products consists of controlled substances, and liquids make up 17 percent.
Qualitest is owned by funds advised by the private equity firm Apax Partners.
The deal will add about $400 million to Endo's revenue, the company says, and about 40 cents per share in net income. The company reaffirmed its 2010 outlook for adjusted net income per share between $3.30 and $3.35 on revenue between $1.63 billion and $1.68 billion.
The transaction is expected to close late in the fourth quarter or early in the first quarter. Lazard and J.P. Morgan Securities LLC are serving as advisers to Endo and Qualitest, respectively.
