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In a bid to strengthen its generics portfolio, Endo International (ENDP - Analyst Report) has inked a deal to buy privately held DAVA Pharmaceuticals for a cash consideration of approximately $575 million. The deal is expected to close in the latter half of the year.

The value might go up by $25 million in the event of the achievement of certain sales milestones. Shares of Endo were positively impacted by the news. The DAVA acquisition should be immediately accretive following its closure and boost Endo’s 2014 earnings. 

Boost to Generics Unit

Endo’s generics unit will be boosted by the addition of 13 marketed products from DAVA. The generics pipeline at Endo will also be strengthened in the event of the DAVA deal going through. More than five generic offerings from DAVA are expected to hit the market in 2015. In view of such a promising outlook, Endo’s decision to take over DAVA seems to be a prudent move.

Endo is looking to augment its generics business through acquisitions. The segment recorded sales of $212 million in the first quarter, up 19% year over year. If the DAVA deal goes through, it would be the second major buy at Endo after the Feb 2014 purchase of Boca Pharmacal to strengthen its generics unit.

An Offset for Falling Painkiller Sales

Endo’s painkillers – Lidoderm and Opana ER – have been experiencing declining sales due to generic competition. In the first quarter of 2014, revenues came in at $594.6 million, down 10% primarily due to lower sales of Lidoderm (down 82%) and Opana ER (down 17%). Companies like Actavis (ACT - Analyst Report) have launched their generic versions of the drugs. The decision to acquire DAVA is aimed at combating dwindling sales from generic competition of key products.

Endo carries a Zacks Rank #3 (Hold). Better-ranked stocks in the healthcare sector include Akorn (AKRX - Snapshot Report) and Mallinckrodt (MNK - Snapshot Report). Both the stocks carry a Zacks Rank #1 (Strong Buy).

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