UPDATED: Auxilium shares soar after Endo swoops in with a $2.2B buyout offer

Just a few days after Auxilium Pharmaceuticals put out the word that pressure on the sales side was forcing a restructuring and the elimination of about 200 jobs, Endo has come along with a proposal to buy out the company for about $2.2 billion worth of cash and stock, while squashing Auxilium's planned takeover of Canada's QLT in the latest in a series of tax inversion deals.

Auxilium's ($AUXL) shares immediately rocketed up past the 31% premium that Endo ($ENDP) is offering. Endo says that it is willing to pay $28.10 a share and Auxilium closed today at $21.52, with shares rising past the $30 mark Tuesday evening as investors bet on a sweetened offer. By Wednesday morning Auxilium's shares were up 43%.

Endo clearly believes that it can cut more expenses out of the combined operation--on top of the $75 million in cutbacks being earmarked by Auxilium. And it could set the stage for more M&A action ahead. 

Endo has been on a dealmaking spree this year. Earlier this year it bought Canada's Paladin Labs for $1.6 billion, setting up a tax inversion flip to Ireland along the way, positioning the company to make future buyouts more attractive. And it followed up with the $600 million acquisition of Dava Pharmaceutical. Recently it's reportedly been looking for a buyer for its American Medical Systems subsidiary, a devicemaker.

"The combined company will be well positioned to drive organic growth and to capitalize on additional future strategic M&A opportunities," Endo noted in its statement.

Auxilium is already well down the road on a merger with QLT. That buyout was designed to cut its tax rate from 35% to Canada's 15%. Back in June the biotech said it would acquire QLT in a $345 million stock deal and domicile the combined company in British Columbia. And when Auxilium CEO Adrian Adams was touting the merger with QLT in June he talked up the notion of using the freed-up tax money to invest more into R&D and acquisitions.

Now Dublin-based Endo wants to jump in, and it doesn't want QLT as part of the package. If Auxilium does drop the acquisition, it will have to pay a $27 million breakup fee.

Excluding QLT from the bargaining table could throw a monkey wrench into the deal for Auxilium, says Leerink analyst Joseph Schwartz.

"While we believe that a deal with ENDP at levels reasonably close to the current offer price presents a sound exit strategy for AUXL shareholders, it remains to be seen whether or not AUXL will be willing to join ENDP at the negotiating table given its pending inversion with QLT, which ENDP stressed it is not purchasing along with AUXL," Schwartz noted.

But Endo CEO Rajiv De Silva sounds confident.

"Endo's proposal would provide Auxilium shareholders a substantial premium and immediate cash value for their investment in Auxilium, as well as the opportunity to participate in the upside potential of a leading global specialty healthcare company," said De Silva in a statement. "In light of the highly complementary nature of our two companies' commercial portfolios, the growth potential of Auxilium's Xiaflex and the significant synergy opportunities, we believe this compelling strategic combination would result in and create benefits for both Endo and Auxilium shareholders, as well as for patients, customers and employees."      

- here's the release