Drugmaker Endo International is climbing toward the top of the steadily consolidating generic medicine business with a deal to buy Par Pharmaceutical Holdings for about $8.05 billion.
The deal would enable Dublin-based Endo to leapfrog from No. 10 to No. 5 in U.S. generic drug sales barely five years after its first foray into generics.
It appears to be the latest maneuver in a battle for pricing power that pits drugmakers against payers such as insurers and pharmacy benefit managers.
Recent consolidation has reduced the number of generic drug manufacturers and is driving shortages — and accompanying price spikes — of some generic drugs. Meanwhile, brand-name drugmakers are consolidating and in some cases swapping assets as they aim to increase revenue growth, cut costs and boost profits.
Drugmakers of all kinds are trying to counter the increasing leverage of several payers with huge market share. In the U.S., that includes the biggest health insurers and two pharmacy benefit managers, Express Scripts Holding Co. and CVS Health Corp. In other developed countries, national health programs for several years have been demanding increasing discounts off rates already far below U.S. prices and now are balking at astronomical prices for the newest drugs, particularly for cancer and hepatitis C.
Endo, whose branded products include pain treatment Opana ER and numbing agent Lidoderm, got into generics with its 2010 purchase of Qualitest, then bought generic makers Boca in 2013 and Dava last June. On Monday, Endo said it expects its generic unit will see double-digit revenue growth when it adds Par, which is based in Woodcliff Lake, N.J.
It also may increase that unit's profitability, as it "diversifies its presence in higher-value generics (and) potentially boosts growth and margins," Wells Fargo Securities LLC analyst Michael Faerm wrote to investors.
That's because Par doesn't just make generic pills and liquid medicines. It also makes harder-to-manufacture generics, including ones in patches, films, nasal sprays and injected drugs, as well as controlled substances such as painkiller oxycodone. Those generally attract less competition and so bring higher profit margins.
Endo last year reported revenue of $2.9 billion, $1.1 billion of that from generics. Par had $1.3 billion in 2014 revenue, virtually all of it from generics, according to Endo.
The deal, expected to close in the second half of this year, has been approved by the boards of directors of Endo and Par, which was acquired by the private equity firm TPG in 2012 for about $2 billion. It includes about 18 million shares of Endo stock and $6.5 billion in cash, along with the assumption of debt.
The purchase follows Endo's failed attempt to buy Salix Pharmaceutical Ltd. after being outbid by serial acquirer Valeant Pharmaceuticals International.
Meanwhile, the world's top generic drugmaker, Israel's Teva Pharmaceutical Industries Ltd., is attempting a hostile takeover of No. 2 Mylan N.V., which has rejected its latest offer: $40.1 billion in cash and stock. Mylan, based in the Netherlands, in turn three weeks ago upped its offer to $34.1 billion in cash and stock for Perrigo Co., which makes generic and nonprescription medicines. Perrigo, of Dublin, Ireland, rejected that offer as well.
Shares of Endo were down $4.64, or 5.4%, at $80.71 in afternoon trading.