Auxilium Pharmaceuticals Inc. will still end up in the hands of an ex-U.S. pharma, but not by way of a tax inversion. The company will go to Endo International plc, of Dublin, in a sweetened deal, instead of its original plan to merge with Canadian biotech QLT Inc.

Auxilium, of Chesterbrook, Pa., agreed to the acquisition by Endo, which will purchase Auxilium's outstanding shares for $33.25 apiece in a cash-and-stock transaction. The price represents a premium of 55 percent to Auxilium's closing price on Sept. 16, when Endo disclosed its original $2.2 billion proposal, at a value of $28.10 per share. (See BioWorld Today, Sept. 18, 2014.)

The boards of both companies unanimously approved the transaction, now valued at $2.6 billion, including the repayment and assumption of Auxilium's debt.

Immediately before inking the agreement with Endo, Auxilium terminated its proposed merger agreement with QLT. Jason Aryeh, chairman of QLT's board, issued a statement expressing the company's disappointment in the outcome. He said QLT expected to receive a termination fee of $28.4 million and would "immediately re-engage in our assessment of all potential strategic options."

The QLT deal, struck in June, would have given Auxilium shareholders control of 76 percent of the combined entity, with Vancouver, British Columbia-based QLT shareholders holding 24 percent. With intentions to license out QLT's synthetic retinoid program, the orphan drug QLT091001, it was obvious from the start that the true motivation for the deal was to create a Canadian-domiciled structure. (See BioWorld Today, June 27, 2014.)

That won't be the case with the Endo deal, though company officials maintained they might still reap some tax advantages from the transaction. The agreement allows Auxilium shareholders to elect one of three compensation options for their shares: 100 percent equity, translating to 0.488 Endo shares for each Auxilium share; 100 percent cash at $33.25 per Auxilium share; or a standard election of an equal mix of $16.625 in cash and 0.244 in Endo shares for each Auxilium share. Endo said the total cash in the deal will not exceed 50 percent of the total equity value, and the equity consideration will not exceed 75 percent of the total equity value.

Endo said it will fund the cash portion of the transaction through a combination of cash on hand and committed debt financing from Citi. The acquisition is expected to close in the first half of 2015, subject to approval by Auxilium's shareholders, regulatory approval in the U.S. and certain other jurisdictions, and other customary conditions.

Endo said the transaction is expected to be accretive immediately following the close and meaningfully accretive in each subsequent year, with combined synergies expected to achieve cost savings of approximately $175 million within 12 months of the deal's close.

Those savings include a reduction of approximately $75 million in annual operating expenses due to a restructuring that Auxilium disclosed last month – in part, due to flagging sales of testosterone replacement therapies (TRT) following an FDA safety communication earlier this year indicating its plan to investigate TRTs. (See BioWorld Today, May 8, 2014, and Sept. 25, 2014.)

EXPLOITING XIAFLEX MARKET OPPORTUNITY

In September, a joint meeting of the Bone, Reproductive and Urologic Drugs Advisory Committee and the Drug Safety and Risk Management Advisory Committee cast another pall over the TRT space by concluding overwhelmingly – on a 20-1 vote – that such drugs should be used only to treat classic hypogonadism, or low testosterone due to testicular or disease of the hypothalamic/pituitary glands.

The most detrimental impact of that vote, which is not binding on the FDA, fell on Repros Therapeutics Inc., of The Woodlands, Texas, which is developing the estrogen receptor antagonist Androxal (enclomiphene) as an oral secondary hypogonadism treatment. But analysts immediately speculated that the vote could affect Auxilium's takeout value. (See BioWorld Today, Aug. 29, 2014.)

On a conference call early Thursday, Rajiv De Silva, president and CEO of Endo, and Adrian Adams, Auxilium's CEO and president, sang from the same song sheet, restating the many ways they expect the deal to create a stronger company by combining complementary portfolios and enabling Endo to maximize the value of Auxilium's commercial products. Both officials said Endo is in a better position to improve market penetration of Auxilium's product, Xiaflex (collagenase clostridium histolyticum), and accelerate its development in potential new indications.

Xiaflex is approved in Peyronie's disease and Dupuytren's contracture, and the company is seeking to expand the product into additional indications, such as the treatment of skin-dimpling due to cellulite and frozen shoulder. (See BioWorld Today, Dec. 9, 2013.)

De Silva also maintained that Endo will optimize Auxilium's other products, including the long-acting implantable testosterone replacement therapy, Testopel (testosterone pellets), and the fast-acting Stendra (avanafil) for erectile dysfunction. He said the combined company will seek organic growth across its portfolio but added that the deal was structured to provide sufficient flexibility for future M&A opportunities.

RBC Capital Markets analyst Randall Stanicky applauded the transaction.

"Conceptually we like this deal and the organic growth add to 2016E+ regardless of where views are on Xiaflex," Stanicky wrote in a note. "AUXL's portfolio of branded products in urology and men's health fit well with ENDP's existing portfolio and add more specialty brand exposure."

Stanicky predicted last month that Endo would sweeten its bid after Auxilium's board rejected the initial offer. "This move by AUXL was fully expected and is likely to bring a revised and slightly higher bid from ENDP," he wrote at the time. "However, given the negative vote from the FDA advisory panel on testosterone drug use that came the day after the bid, it is not clear there is a ton of patience for an aggressively revised upward bid."

Most analysts signed off on a presumed deal between Endo and Auxilium last month, after the U.S. Treasury proposed rules that could put a damper on tax inversion deals. (See BioWorld Today, Sept. 24, 2014.)

On Thursday, Auxilium's shares (NASDAQ:AUXL) rose to a 52-week high of $33 on 18 times daily volume, closing at $32.44 for a gain of $2.68.

Endo's shares (NASDAQ:ENDP) slid $4.22 to close at $66.78, while QLT (NASDAQ:QLTI) gained 3 cents to close at $4.07, with trading active in both stocks.