Endo Pharma To Buy Penwest

In a bid to sustain and drive growth in the area of pain management, Endo Pharmaceuticals Holdings Inc. (ENDP: 29.15 +0.70 +2.46%) recently agreed to acquire drug developer Penwest Pharmaceuticals Co. (PPCO: 5.00 +0.03 +0.60%). Through this deal, Endo Pharma will gain full access to a painkiller that was being co-developed by the companies. The deal, worth approximately $144 million or $5.00 per share in cash, has been approved by the Boards of both companies.

The companies have been co-developing an extended-release version of Opana (Opana ER) for treating moderate to severe pain in patients in need of continuous opioid treatment.

Under the terms of the agreement, Endo will commence an all-cash tender offer shortly to purchase all the outstanding common stock of Penwest. The tender offer price of $5.00 per share represents a premium of 47% over the 30-day average of Penwest shares. The offer is expected to be completed in September this year.

Furthermore, Endo will buy any Penwest stock not purchased in the original tender offer through a second-step merger at the same price as in the tender offer. That process is expected to be completed during the fourth quarter of 2010.

Endo expects the deal to be accretive to its 2010 adjusted earnings (excluding special items) primarily due to a reduction in cost of goods sold. While Endo maintains its earlier 2010 revenue guidance range of $1.63 billion to $1.68 billion, it has raised its 2010 adjusted earnings projection in anticipation of the closure of the deal. The company now expects 2010 adjusted earnings in the range of $3.30 to $3.35 per share as opposed to the earlier view of $3.25 to $3.30 per share. However, Endo has trimmed its 2010 reported earnings (including special items) outlook to $1.89 - $1.97 because of charges associated with the merger.

Pain Pipeline Advances

The pipeline at Endo received a boost with the company filing a New Drug Application (NDA) with the US Food and Drug Administration (FDA) for a new extended-release formulation of oxymorphone. The new version is intended to bring relief to patients suffering from moderate to severe pain and requiring continuous opioid treatment for an extended period of time. The new formulation, co-developed with Grunenthal GmbH, is designed to reduce accidental misuse and deter certain methods of intended abuse.

The NDA submission is based on a non-clinical and clinical program, which showed that the crush-resistant version of oxymorphone addresses attempts to misuse or abuse the drug through means of breaking, crushing, extracting or making a powder of the product.