Endo CEO: More buyouts, but smaller

You could look at Endo Pharmaceuticals as a mini-illustration of pharma's current challenges--and the strategies for meeting them. The company's lead product, Lidoderm, loses patent protection in 2015. To prepare for the sales hit, Endo has been buying up smaller companies. Those deals have not only beefed up its pain-management business, but they've also taken Endo in new directions within the drug business: urology and generics. And into new businesses beyond drugs, such as devices and services.

With Endo's latest--and largest--acquisition, American Medical Systems, the company is aiming to build critical mass in its urology business. The aim is to deliver branded drugs, generics, devices and services to urology patients, with an eye toward improving efficiency and outcomes to satisfy increasingly budget-minded payors, CEO David Holveck told Bloomberg.

Since 2009, Endo has spent $5 billion on deals, and it's not quite finished yet. Although it's not in the market for more buys the size of AMS ($2.6 billion) or even Qualitest, the generics company it bought last year for $1.2 billion, some targeted acquisitions are likely, Holveck said. Namely, deals of a couple hundred million or smaller in areas that "accent the major pieces" Endo has already put together in urology. Think diagnostics, for instance. "The bricks are in place," he told Dow Jones. "The mortar between the bricks will be areas of focus."

Endo is taking on significant debt with the AMS deal, prompting Standard & Poor's to put its credit ratings on watch. But Holveck says the company will be able to pay down debt easily, given that its branded drugs business has been so profitable historically. Plus, the cost of money is low right now. "You have to seize the moment," he said. And S&P's Michael Berrian said that, long term, the AMS deal "will likely improve Endo's business risk profile."

- check out the Dow Jones story
- see the Bloomberg Television interview
- read the analysis from MorningStar