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Endo Pharma's Big Acquisition Streak Ends With Latest Deal

By Jon Kamp Of DOW JONES NEWSWIRES Endo Pharmaceuticals Holdings Inc. (ENDP) has reshaped its portfolio and lessened its reliance on a slow-growing pain patch through a recent acquisition streak, but will take a break from big deals after adding urology-device company American Medical Systems Holdings Inc. (AMMD) for $2.6 billion. Endo has agreed to pay roughly $5 billion since early 2009 on a variety of deals to add a urology franchise, bolster its existing pain-management business and lessen the Lidoderm pain patch's sales impact. Following the AMS deal--by far the largest in Endo's recent purchasing streak--the company is more interested in small "bolt-on" deals that augment existing businesses, Chief Executive Dave Holveck said. "The bricks are in place," he said in an interview. "The mortar between the bricks will be areas of focus." He also said the company will focus on integrating recent deals and paying down debt. Endo shares climbed on the deal news and were recently up 5.6% to $43.12. Shares of AMS, which the deal values at $30 per share, soared 32% to $29.51. The deal for AMS includes $312 million in assumed debt. Standard & Poor's said it is putting Endo's BB+ credit ratings on CreditWatch with negative implications and expects to lower the corporate rating by one notch to BB after the deal closes while assigning a stable rating. That is two notches below an investment-grade rating. Still, S&P analyst Michael Berrian said the deal "will likely improve Endo's business risk profile through enhanced product and geographic diversity and, over the longer term, a reduced dependence on patented products for revenue." The main patented product at issue is Lidoderm, which grew sales by about 2.5% last year after decreasing slightly in 2009, and loses patent protection against generic competition in 2015. Endo's total sales of $1.72 billion grew at a much faster 17% clip last year as the company folded in newly acquired businesses, including Qualitest Pharmaceuticals, a generics business added late in the year for $1.2 billion. Lidoderm accounted for 61% of Endo sales in 2008, but that contribution has been shrinking steadily due to new deals. Endo forecasted the pain patches' sales contribution will be less than 30% after the AMS deal. Lidoderm is a "mature product" with limited market potential that is growing sales in a low single-digit rate, said Julie McHugh, Endo's chief operating officer, in the interview. Endo projected the AMS business, in contrast, will grow sales in a high single-digit range going forward, improving on its recent growth rate. AMS sales rose 4.4% to $542.3 million last year. "We strongly believe AMS is a high-growth asset," Holveck told analysts on a conference call. -By Jon Kamp, Dow Jones Newswires; 617-654-6728;

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