If there has been any safe bet this year, it’s mergers and acquisitions in the pharmaceutical industry. And the sector’s latest deal show how much further the frenzy has to run.
What makes the deal significant is that generic drug makers are so keen to partner up. In just the last few weeks we’ve seen generic drug maker Mylan NV (NASDAQ:MYL) make an unsolicited offer for rival Perrigo Company plc (NYSE:PRGO), with Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) then targeting Mylan.
With generic drug makers in play, it’s pretty clear that consolidation is running rampant throughout the sector. After all, this isn’t a deal where a big pharma company is looking to shore up an aging pipeline. This is strictly about size, scale and savings.
Indeed, pharma firms are so desperate to get bigger, almost any deal sounds good. Endo moved on to Par Phara after losing a bidding war with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) over Salix Pharmaceuticals Ltd.
Endo Not Done Shopping
In this latest marriage of generic drug companies, Endo is buying Par from private-equity firm TPG for $8 billion in cash and stock. With a portfolio of about 100 products ranging from oral solids to injectables, the combination of Par and Endo will forge one of the largest generic makers by U.S. sales.
Endo, which relocated overseas in an inversion deal last year, said the acquisition with Par will yield operational and tax savings of $175 million. It should be accretive to earnings within a year and lead to double-digit EPS growth next year.
As promising as all that sounds, the market is eyeing this acquisition with some skepticism. It’s not unusual for the stock of the acquiring company to decline on deal news, but Endo stock is overdoing it.
ENDP stock fell 5.4% after news came out on Monday, no doubt because of worries that the stock part of the deal payment will dilute existing shareholders’ stakes.
If that’s the case, shareholders had better get used to it. ENDP is pursuing an explicit strategy of bulking up through acquisitions, so this certainly won’t be its last.
That might give some Endo shareholders pause, but it’s great news for bets on the broader pharmaceutical sector. All this dealmaking has helped the sector deliver market-crushing gains this year with more upside in sight.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
