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Update on Endo's Acquisition Strategy

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Endo Health Solutions (ENDP - Free Report) appears to be a great believer in the growth-by-acquisition strategy. The company has been quite active on the acquisition front over the last few years. Endo Health completed three major acquisitions in 2010 to bolster its business. In Dec 2010, the company acquired Qualitest Pharmaceuticals for $1.2 billion. During 2010, Endo also bought Penwest Pharmaceuticals Co. and HealthTronics Inc. In Jun 2011, the company purchased American Medical Systems, a leading pelvic-health devices provider, for $2.9 billion.

The company inked a couple of deals in 2012 to expand its business. In Mar 2012, Endo Health joined hands with Mersana Therapeutics Inc. for the development of next-generation antibody-drug conjugates. Moreover, in Jan 2012, Endo inked a global license and development agreement with BioDelivery Sciences International regarding the latter’s pain candidate BEMA buprenorphine.

Endo Health has signed a few acquisition related deals in 2013 too. In Aug 2013, Endo announced its intention to acquire privately-held generics company Boca Pharmacal for $225 million in cash. Earlier in the month, Endo Health announced its decision to acquire NuPathe Inc. for an upfront cash payment of $2.85 per share or about $105 million. Endo Health expects significant cost synergies from the acquisition, expected to be completed in early 2014. The NuPathe acquisition is expected to be earnings-accretive within a year of the closing of the transaction.

However, the most expensive acquisition related announcement at Endo Health was made in Nov 2013 when it decided to announce Canadian Specialty Pharmaceutical Company Paladin Labs Inc. for approximately $1.6 billion in a cash and stock deal. Endo Health moved a step closer to acquiring Paladin when the former announced the early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976. Moreover, the Canadian Competition Bureau issued a no-action letter removing another hurdle related to the impending acquisition.

At the time of announcing the deal, Endo Health had said that the deal, following closure, is expected to result in annual savings of at least $75 million. Shareholders at Endo Health will own 77.5% of the merged entity and Paladin Labs shareholders will hold the balance. Endo Health’s current management will head the operations of the merged entity.

We believe that the impending acquisitions are in line with Endo Health’s efforts to expand and counter the declining revenues due to generic competition facing its key drugs.

Endo Health carries a Zacks Rank #2 (Buy). Investors may consider stocks like Jazz Pharmaceuticals (JAZZ - Free Report) and Vanda Pharmaceuticals Inc. (VNDA - Free Report) . Both stocks carry a Zacks Rank #1 (Strong Buy).

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