Auxilium Adopts Poison Pill in Response to $2.2B Endo Bid

NEW YORK (The Deal) -- Auxilium Pharmaceuticals  (AUXL) has adopted a "poison pill" stockholder rights plan in response to an unsolicited $2.2 billion takeover proposal from Irish specialty drug maker Endo International plc.

The Chesterbrook, Pa., pharmaceutical company also said it was not withdrawing its merger with Canadian biotech QLT, announced June 26.

Endo went public with the bid for Auxilium Tuesday evening after it had received no response for several days from the target. Endo executives said they had approached Auxilium with the offer Friday, Sept. 12. Endo characterized the offer as "shareholder friendly," emphasizing the strategic fit of the companies.

The offer is only for Auxilium, and does not include QLT.

Auxilium is well into the process of buying eye drug biotech QLT for $346 million in stock and expects to close the deal in the fourth quarter. The FTC has already granted early termination under the Hart-Scott Rodino Act.

The Dublin company received a finance commitment from Deutsche Bank (DB)  for $225 million for the QLT acquisition.

While Auxilium is eager to grow, it is thwarted by its current cost structure, which led it to announce a restructuring program one week ago designed to save $75 million a year and help offset falling sales from its Testim testosterone gel. The measures include a plan to cut 30% of its workforce, eliminate one of its three sales forces, and focus R&D efforts on developing Xiaflex for further uses.

A merger with Endo could "at least double" those synergies, to $150 million, Endo President and CEO Rajiv De Silva told investors in a Tuesday conference call.


De Silva said Auxilium and Endo have a natural strategic dovetail with complementary products in men's health. In addition, Endo's commercial and regulatory infrastructure and R&D expertise could help grow Auxilium's lead product collagenase enzyme Xiaflex more quickly. It also has the financial resources to accomplish that goal, he said.

Xiaflex is approved to treat Peyronie's disease and Dupuytren's contracture, and has recently shown benefit in treating other collagen-related disorders such as cellulite and frozen shoulder syndrome.

In a Wednesday morning statement, Auxilium said it is reviewing Endo's proposal, but that it adopted the one-year shareholder rights plan with a 15% trigger to ensure that its shareholders "receive fair and equal treatment" and reduce the likelihood of open market accumulation of the stock "or other coercive tactics."

Endo's $28.10-per-share cash-and-stock proposal is a 31% premium to Auxilium's closing price on Tuesday, the bidder noted. The deal has an "uber-high probability of being consummated," Canaccord Genuity analyst Corey Davis said in a note published Wednesday.

"Who needs QLT?" asked Davis. The QLT merger "is an inversion play." he noted. "Our opinion is that the Endo offer gives Auxilium holders a far superior outlook to anything that the QLT acquisition could afford in the near-term and one the Auxilium board won't be able to ignore," Davis said.

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