Auxilium dumps QLT inversion deal for $2.6B Endo buyout

Endo CEO Rajiv De Silva--FiercePharma file
Endo CEO Rajiv De Silva

In September, Auxilium Pharmaceuticals' ($AUXL) CEO Adrian Adams shrugged off a $2.2 billion acquisition offer from Dublin-based Endo International ($ENDP), saying he'd rather do a reverse merger with Canada's QLT ($QLTI). Endo upped its offer to $2.6 billion in cash and stock--enough to seal the deal, the company announced today.

Endo said that the boards of directors of both companies have unanimously voted in favor of the merger, which Endo will complete for $33.25 a share--a 12% premium to Auxilium's Wednesday closing price. The deal will add Auxilium's Xiaflex for treating Dupuytren's Contracture and Peyronie's Disease, as well as the testosterone supplements Testim and Testopel to Endo's portfolio of specialty drugs. Endo expects the combined companies to achieve $175 million in annual cost savings, according to the press release announcing the deal.

"By adding Auxilium's complementary commercial portfolio, we believe this transaction is aligned with our strategy of pursuing accretive, value creating growth opportunities," said Endo CEO Rajiv De Silva in the press release.

At first, Auxilium was none too pleased with Endo's courtship. Auxilium's board adopted a poison pill in mid-September to give it enough time to weigh Endo's original offer against the QLT merger plan. This despite the fact that investors were thrilled with Endo's offer--pushing Auxilium's share price well beyond the 31% premium that the bid reflected--and analysts were predicting EPS accretion of 9% in 2015 and $17% in 2016 if the deal were to be consummated.

Auxilium's board declared Endo's offer inadequate, agreed to merge with QLT, but left the door open to a better offer from Endo. That was no surprise, considering that Endo could offer the same tax advantages as QLT could; Endo acquired Paladin Labs last year, pulling off its own tax inversion by relocating from Malvern, PA, to Dublin.

Add to that Auxilium's recent product struggles and it's easy to see why merging with Endo may have become more enticing. Sales of Auxilium's testosterone gel Testim have been plummeting, prompting the company to lay off 190 people--a third of its workforce--in September.

The sales decline came in the wake of the FDA's crackdown on testosterone-replacement drugs, which the agency fears may raise the risk of cardiovascular problems. An FDA advisory panel suggested recently that the agency limit the use of testosterone products to men with clinically low levels of the hormone and a related medical condition such as a genetic disorder. That would greatly limit the ability of Auxilium and other testosterone makers to market the hormone for antiaging and other lifestyle-enhancement uses.

Endo promises in today's statement to devote R&D resources towards leveraging Auxilium's presence in men's health and accelerating the growth of Xiaflex, which Auxilium has been testing as a cellulite treatment. Endo expects the deal to close in the first half of 2015. And Auxilium shareholders are rejoicing again, pushing the company's shares up more than 11% to $33.27 prior to today's opening.

- here's Endo's press release
- read more at Bloomberg
- here's Reuters' take

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