Endo Pharmaceuticals has launched a $168 million bid to buy Penwest Pharmaceutical, a purchase that could slash Endo's expenses and expand its rare disease portfolio. The two companies have collaborated since 1997 on the development and commercialization of Opana ER, a long-acting pain medication that incorporates Penwest's proprietary controlled-release drug delivery system TimerX. Once Endo owns Penwest, it can quit paying royalties to the company.

“The board of directors and I concluded that this transaction is in the best interests of Penwest and its shareholders and is an excellent way to maximize the value of Penwest's most strategic asset, Opana ER,” says Penwest's president and CEO, Jennifer Good.

Revenue from Opana ER could begin to erode by 2013, when Barr Laboratories, Impax, and Sandoz bring generic versions of the drug to market in the United States. But the acquisition also delivers another potential revenue stream for Endo: A0001, Penwest's mid-stage treatment for Friedreich's ataxia, a rare inherited disease that affects the muscles and heart, and MELAS syndrome, a rare form of dementia.

Endo expects to complete its $5 per share all-cash offer for Penwest by September. It will help that some of Penwest's largest shareholders, Tang Capital Partners, Perceptive Advisors, and Good, have already committed to tender their shares for the all cash offer. Collectively they own 38.6 percent of the company. The transaction has also been approved by the boards of directors of both companies.