Both firms’ boards approved the merger, but shareholder investigations have begun.

Endo Pharmaceuticals has decided to pick up Penwest Pharmaceuticals for an estimated enterprise value of $144 million. Penwest has been working with Endo since 1997 on Opana® ER, indicated for the relief of moderate-to-severe acute pain where the use of an opioid is appropriate, and receives a royalty stream on net sales of the product.

The acquisition has been unanimously approved by the boards of directors of both companies. However, a number of law firms have initiated an investigation on behalf of Penwest shareholders to determine whether the company and its board breached their fiduciary duties and other state laws. Companies including Kendall Law Group, Ryan & Maniskas, Powers Taylor, and The Briscoe Law Firm will assess whether Penwest undertook a fair process to obtain fair consideration for all shareholders.

Endo said yesterday that it will pay $5 in cash per outstanding share. This represents an 18.76% premium over Friday’s closing price of $4.2. The tender offer is expected to be completed in September.

For Endo the transaction is expected to be immediately accretive to 2010 adjusted earnings per share. Accretion derives primarily from a reduction in cost of goods associated with Opana ER royalties as well as certain tax attributes associated with the acquired company. The company’s 2010 revenue guidance remains between $1.63 billion and $1.68 billion. But full-year adjusted diluted earnings per share is estimated to be between $3.30 to $3.35 per share versus previous guidance of $3.25 to $3.30 per share.

“Our acquisition of Penwest sets the stage for maximizing the value of the Opana franchise and for leveraging Penwest’s drug delivery technologies and pipeline across our branded and specialty generics businesses for the benefit of patients,” comments Julie McHugh, COO, Endo Pharmaceuticals. “This transaction highlights the growth potential of Endo’s core pain management franchise, enhances our earnings, and creates significant value for shareholders of both organizations.”

Separately Endo reported that it filed an NDA for a new extended-release formulation of oxymorphone for the relief of moderate-to-severe pain in patients requiring continuous, around-the-clock opioid treatment for an extended period of time. Developed in partnership with Grunenthal, this formulation of oxymorphone is designed to reduce accidental misuse and deter certain methods of intended abuse. Oxymorphone is also the active ingredient in Opana ER.

“Endo is committed to applying our expertise to deliver a new crush-resistant opioid medication to deter nonmedical abuse,” says Ivan Gergel, M.D., evp of R&D, Endo Pharmaceuticals. The NDA submission is based on a nonclinical and clinical development program designed to demonstrate that the crush-resistant formulation of oxymorphone addresses attempts to break, crush, extract, powder, and pulverize the product.

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