Endo Pharma buying Minnetonka-based American Medical for $2.6B

A Pennsylvania drug company has agreed to pay $2.6 billion to buy American Medical Systems. That Minnetonka-based firm provides devices and therapies for pelvic health, urology, and gynecology.

The buyer is Endo Pharmaceuticals, which develops and markets drugs to treat bladder cancer, prostate cancer and other urology problems. Endo had bought a few smaller medical device companies that focused on urology.

But Piper Jaffray analyst Thom Gunderson says the purchase of AMS makes Endo a major player on the device side of urology treatments.

"If you want to be in urology, you buy somebody like an American Medical Systems. They're renowned for their position in urology," said Gunderson.

AMS got its start in Minnesota in the early 1970s. At one point it was part of the Pfizer drug company before being spun off.

AMS had a net profit of $136 million last year, on revenue of about $540 million. The company has about 1,250 employees worldwide, but would not provide a count of workers in Minnesota.

In a conference call with analysts, AMS CEO Tony Bihl said Endo and his company are a great fit.

"I strongly believe that Endo is the right partner to take our business forward," he said. "I can see a number of opportunities to come for our employees and customers and the patients they serve. And I look forward to the future successes of this combination."

The companies say the deal could lead to about $50 million in annual cost savings. The phrase "cost savings" is often a euphemism for job cuts in such mergers.

But Endo's CFO Alan Levin said the transaction is about building a greater company, not slashing costs to boost profits.

"The combination is more about growth than anything else," Levin said. "It's not a big synergy play. It's certainly not driven by the pportunity for cost savings. We have more limited critical size in device and services. And so for us it's really about the strategic fit for the ransaction itself."

Piper Jaffray's Gunderson expects Endo won't change things much at AMS.

"We've always looked at American Medical Systems as an acquisition that would be a plug and play, and that's the way I think Endo Pharmaceutical is looking at it," Gunderson said.

Morningstar analyst Debbie Wang says AMS has been a dominant force in developing devices to treat pelvic health problems.

"Especially in male pelvic health, they are really the market leader with all of their penile implants and their incontinence devices," Wang said. "It's an area where they really do have a competitive advantage and they've consistently come up with innovation."

Wang says buying AMS will allow Endo to offer a complete range of urologic treatments.

"They want to attack urology and they want to cover it from all different bases, which includes drugs as well as devices -- so that they can go in there and offer the urologist a complete A to Z solution," she said.

Shareholders of American Medical will get $30 per share. That's a premium of about 34 percent to the stock's closing price on Friday.

The deal also includes Endo's assumption of $312 million of American Medical's debt, making the deal worth $2.9 billion overall.

The acquisition of AMS is the latest in a string of acquisitions of Minnesota med tech firms. But that doesn't bother Dale Wahlstrom, CEO of LifeScience Alley and the Bio Business Alliance of Minnesota.

He sees it as part of a continuing trend of out-of-state firms investing in Minnesota medtech firms.

"As far as the global community making investments in Minnesota, I see that as a reassuring thing," said Wahlstrom, "as long as we continue to grow our local competence and knowledge base and keep our center of excellence here in the area of medical device technology. Absolutely."

Wahlstrom says the odds are that a Minnesota medical device company will stay in Minnesota and grow, even after it's bought out.

But Wahlstrom says more and more states are trying to develop strong medtech sectors within their borders. He says Minnesota's public and private sectors and academia must work more closely together to maintain the state's leading position in medtech.