Endo Closes Boca Pharmacal Acquisition

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Endo Health Solutions (ENDP) completed its acquisition of privately held generics company Boca Pharmacal for $225 million in cash. The acquisition, which will be earnings accretive immediately, should boost Endo’s Qualitest (formerly generics) portfolio.

The decision to buy Boca Pharmacal, which focuses on the commercialization and development of products including controlled substances, semisolids, and solutions, is a strategic move by Endo as it strives to combat the lost revenues from genericization of its key painkillers and other drugs.

We note that the Qualitest segment at Endo performed well in the third quarter of 2013 with sales climbing 11% to $183.9 million driven by increased demand for generic drugs. The acquisition of Boca Pharmacal should boost segmental sales further.

Endo also announced that it has completed its divestiture of the struggling HealthTronics division (formerly sevices) to Altaris Capital Partners, LLC for an upfront cash payment of $85 million. Endo is also eligible to receive up to $45 million depending on the performance of the HealthTronics division. The deal was announced in Jan 2014.

We note that Endo had earlier sold two sub-groups -- image guided radiation therapy and anatomical pathology – of the HealthTronics unit for a total of $25 million. We remind investors that Endo had acquired HealthTronics in 2010. The business, which provided urological services, products and support systems, was underperforming for quite some time.

We note that HealthTronics was not the only concern plaguing the company. The threat of genericization looms large over Endo. Endo's third-quarter 2013 revenues declined year over year as its painkillers Opana ER and Lidoderm faced stiff generic competition from companies like Actavis (ACT).

Endo carries a Zacks Rank #3 (Hold). Some better-ranked stocks include Affymetrix Inc. (AFFX) and Actelion Ltd. (ALIOF). Both the stocks hold a Zacks Rank #1 (Strong Buy).

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