The timing of Forest Laboratories Inc.'s takeover of Furiex Pharmaceuticals Inc. for $95 per share, or about $1.1 billion in cash, and up to $30 per share – about $360 million – in a contingent value right (CVR) should not affect Forest's pending merger with Actavis plc, CEO Brent Saunders said.

"If we see an opportunity to do a deal, to drive long-term value, to solve a high unmet medical need, and it fits so strongly strategic rationale like this does, we're going to do it," Saunders told investors during a conference call.

Actavis plc, of Dublin, disclosed in February plans to acquire New York-based Forest for a combination of cash and equity valued at approximately $25 billion or $89.48 per Forest share ($26.04 in cash and 0.3306 Actavis shares for each share of Forest common stock).

"We had to move to get this done, and now is the time," Saunders said. Talks with Furiex, of Morrisville, N.C., began before the Actavis negotiations, he added, noting that Furiex "has been running a process for some time." Of primary interest to Forest was eluxadoline, a first-in-class, locally acting mu opioid receptor agonist and a delta opioid receptor antagonist that has completed phase III trials in diarrhea-predominant irritable bowel syndrome (IBS-d). "We looked at licensing initially [after the] phase II data, and we tried to acquire it after phase III," Saunders said.

Eluxadoline "really is the flip side of the same coin as Linzess [linaclotide]," for IBS. A first-in-class guanylate cyclase-C agonist that acts locally in the intestine with minimal systemic exposure, Linzess was cleared in the summer of 2012 for use in the dual indications of chronic idiopathic constipation and IBS with constipation (IBS-c) in adults. It's partnered with Ironwood Pharmaceuticals Inc., of Cambridge, Mass., which joined forces with Forest in a collaboration in 2007 to co-develop and co-promote linaclotide in the U.S.

"We are the perfect owner of this asset," Saunders said of eluxadoline.

Furiex in February disclosed top-line results from two pivotal phase III trials that met the primary endpoints of composite response based on simultaneous improvements in stool consistency and abdominal pain. Regulators in the U.S. and Europe had agreed on the endpoints, and Furiex said it was on track to submit a new drug application (NDA) for eluxadoline by the end of the third quarter of this year.

The CVR part of the deal could be payable based on how the compound is designated by the Drug Enforcement Administration (DEA). If the best possible CVR milestone is hit, the companies said, the cash and CVR payout together will be $125 per share, or about $1.5 billion in total. If eluxadoline receives FDA approval and is not scheduled as a controlled drug by the DEA, holders of the CVR will get $30 per share or about $360 million altogether. If the compound ends up as a schedule 4 or schedule 5 controlled drug, holders of the CVR will get $10 per share (about $120 million) or $20 per share (about $240 million), respectively.

Forest expects to divest Furiex's royalties on Nesina (alogliptin) and Priligy (dapoxetine) to Royalty Pharma Inc., of New York, for about $415 million, which, after tax, will drop the Furiex purchase price by about $315 million, though the buyout is not contingent on the Royalty deal.

Marco Taglietti, Forest's chief medical officer, said during the conference call that "it doesn't happen frequently to license a drug where the risk-benefit is so well established and looking so good."

Piper Jaffray analyst David Amsellem, though, was made "nervous" by the prospect of pancreatitis. "The fact that there are opioid receptors near the pancreas may give the FDA pause in its review of the safety data," Amsellem wrote in a research report. Taglietti, though, said that the drug has been given to more than 2,000 patients so far, and the few cases that developed were "moderate, reversible and not unexpected, given the mechanism of action. We're talking no more than 7-10 patients. At this point, I think we have [acquired] a drug for which all the risk has been assessed and is behind us."

Asked about the likelihood of an FDA advisory committee meeting, Taglietti noted that the agency might want some scrutiny of eluxadoline because of the way it works and because of the history with London-based Glaxosmithkline plc's Lotronex (alosetron), which won the FDA's blessing in IBS for women (who make up 70 percent of the market) but was withdrawn by GSK in 2000 after nine months of sales. Five Lotronex patients died, and the risks of ulcerative colitis and severe constipation dogged the 5-HT3 receptor antagonist. Lotronex eventually came back but with a restrictive label, and now belongs to the San Diego-based diagnostics/specialty firm Prometheus Laboratories Inc.

"On the other hand, the [NDA package for eluxadoline] is very straightforward," Taglietti said, and pegged the chance of an advisory panel at 50-50. "These are very robust efficacy data," he added. "As the product gets into the market, we will continue to look at new possibilities."

'LEAFING' MONEY ON THE TABLE?

Bill Meury, vice president of sales and marketing for Forest, pointed to "a lot of secondary endpoints in the phase III trials," which means plenty "more information that we're going to be able to extract from the studies." For now, he said, the IBS-d market addressed by eluxadoline is similar in size to IBS-c, which Linzess targets. "Probably the most remarkable fact about the category, though, is that the prescription segment is completely underdeveloped," Meury said.

CEO Saunders said that "what we're buying here is an NDA filing, which we expect to file in the third quarter, maybe earlier. It's not like we're going to continue to do studies. This is about a regulatory package and waiting to commercialize this drug in late 2015 or early 2016." The agreement, he said, is "a break-even deal for this fiscal year and accretive next fiscal year. We've already made the investment to be in GI. In essence we have a fixed cost, and this drug becomes profitable very quickly. In GI and IBS specifically, our marketing and selling capability is at the top. I would argue we're the best in the business at this." The deal is expected to close in the second or third quarter of this year.

Patents related to eluxadoline provide composition-of-matter protection to 2027, Saunders said, with the possibility for extensions. He predicted the compound would be selling well "into the next decade, and really an enduring growth driver" for Forest.

In a research report, Leerink Partners LLC analyst Jason Gerberry called the deal "a strong fit at the right price." Raleigh, N.C.-based Salix Pharmaceuticals Inc.'s Xifaxan (rifaximin), approved for traveler's diarrhea, generates about $150 million per year in off-label sales for IBS-d, since there isn't much else. Since "no approved treatment alternatives exist, we believe today's acquisition makes sense strategically and financially," Gerberry wrote.

Not everyone seemed to think so. At least a half-dozen law firms sought to corral disgruntled shareholders who may believe Forest should pay more. A press release issued on behalf of Milwaukee-based Ademi & O'Reilly LLP declared that "Furiex's long-term financial outlook is very positive and yet Furiex shareholders will receive only $95 for each share of Furiex common stock, dramatically less than the $140 price target set by some analysts." It was Cowen and Co.'s Edward Nash who, in March, set that amount as a price target, urging investors in his research report to keep their "eye on the bowel."

Furiex's stock (NASDAQ:FURX) closed Monday at $103.05, up $22.90, or 28.6 percent. Forest's shares (NYSE:FRX) ended the day at $89.50, down 34 cents.