Allergan ( AGN) said Wednesday it will acquire Esprit Pharma in a $370 million deal that expands its stance in the genitourinary market.

Allergan expects the all-cash transaction, in which it will pay $370 million for all outstanding securities of privately held Esprit, to close in the fourth quarter. The deal sparks a new licensing agreement with Indevus Pharmaceuticals ( IDEV).

Esprit licenses from Indevus and currently markets twice-daily Sanctura, a treatment for overactive bladder -- OAB. The U.S. Food and Drug Administration recently approved an extended-release once-daily formulation, Sanctura XR. Allergan anticipates launching Sanctura XR in the first quarter and said it will increase Esprit's sales force.

Pending the close of the acquisition, Allergan said it expects Esprit will contribute revenue of $6 million to $12 million in the fourth quarter of 2007. With the launch of Sanctura XR and the increase in Esprit's sales force taken into consideration, Allergan believes the transaction will be dilutive by 4 cents to 6 cents a share, excluding items.

Allergan said it still anticipates upper-teens earnings growth in 2008, based on the pretransaction 2007 guidance of $2.16 to $2.18 a share it provided with second-quarter results. The company said the transaction should be significantly accretive to earnings and revenue after 2008.

Allergan's OAB Endeavors

OAB affects about 33 million Americans, a population that will increase significantly as the population ages, according to Allergan, which believes Sanctura XR could reach peak annual revenue between $300 million and $400 million.

Allergan is also conducting phase II and III clinical trials on the use of Botox to treat idiopathic and neurogenic OAB, and studying Botox in a phase II trial on benign prostatic hyperplasia (BPH), a noncancerous growth of the prostate that can interfere with urination. The company said this is one of the most common diseases among men, affecting around 10 million people in the U.S.

New Terms for Indevus

Indevus said Wednesday that as part of its amended Sanctura agreement, Allergan will be responsible for marketing and sales activities. Indevus will supply Sanctura through June 30, 2008, and then in July Allergan will assume manufacturing responsibilities.

Allergan is paying Indevus an upfront license fee of $25 million and royalties on net sales. Royalties will be subject to a guaranteed minimum for a seven-year period: $8.1 million in 2008, $10.6 million in 2009, $15.6 million in 2010, $18.1 million in 2011, $20.6 million in 2012, $23.5 million in 2013 and $26.3 million in 2014.

Indevus will also receive a milestone payment of $20 million in December of 2013 based on certain market exclusivity conditions. The company will also co-promote the drug through September 2008 and receive a quarterly sales-force subsidy amounting to a $9.3 million annual rate.

Allergan shares gained 98 cents, or 1.6%, to $63.19, while Indevus fell 14 cents, or 2%, to $7.14 in recent trading Wednesday.

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