Forest Laboratories, Inc, a leading, fully integrated, specialty pharmaceutical company, has entered into a definitive agreement to acquire Furiex Pharmaceuticals, Inc., a drug development collaboration company, for $95 per share, or approximately $1.1 billion in cash, and up to $30 per share (approximately $360 million in aggregate) in a Contingent Value Right (CVR) that may be payable based on the status of eluxadoline, Furiex’s lead product, as a controlled drug following approval. The acquisition is subject to receipt of customary regulatory approvals and approval by Furiex shareholders.

Forest concurrently announced that it has entered into an agreement with Royalty Pharma to sell Furiex’s royalties on alogliptin and Priligy to Royalty Pharma for approximately $415 million upon successful completion of Forest’s acquisition of Furiex. Forest’s acquisition of Furiex is not contingent on Forest’s agreement with Royalty Pharma.

“The acquisition of Furiex builds on our growing position in gastroenterology and helps to create a leading GI company within Forest. It is a natural extension of our GI business following our $2.9 billion acquisition of Aptalis earlier this year,” said Brent Saunders, chief executive officer and president of Forest Laboratories, Inc. “We believe eluxadoline will be very complementary to our anchor GI product Linzess and additive to our broader GI portfolio, making us more relevant to gastroenterologists and primary care physicians. With eluxadoline, we expect to have one of the broadest product offerings for the $38 billion GI disease market.”

Eluxadoline is a first-in-class, locally-acting mu opioid receptor agonist and a delta opioid receptor antagonist for treating symptoms of diarrhoea-predominant irritable bowel syndrome (IBS-d). IBS-d affects approximately 28 million patients in the United States and Europe. In February, Furiex announced top-line results indicating the company's two pivotal Phase III clinical trials evaluating the efficacy and safety of eluxadoline in the treatment of IBS-d met both the U.S. Food and Drug Administration (FDA) and the European Medicines Agency formally agreed-upon primary endpoints of composite response based on simultaneous improvements in stool consistency and abdominal pain. Furiex is on track to submit a New Drug Application for eluxadoline by the end of the third quarter of 2014.

“Furiex has built a strong portfolio of life-improving therapies for patients, including development stage assets and royalty-bearing products. Forest’s acquisition of our company is a testament to the strength of the business we have built,” said Fred Eshelman, founding chairman of Furiex. "I am very proud of our team for its hard work and excellent development of eluxadoline in just under four years. There is a strong business fit between Furiex and Forest, and eluxadoline is expected to contribute to Forest’s leading GI franchise.”

The terms of the merger agreement provide for Forest to pay $95 per share to Furiex shareholders. In addition, Forest agreed to make additional payments to Furiex shareholders that are contingent upon achievement of certain designations following FDA review. If the optimal CVR milestone is realized, the combined cash and CVR consideration payable in the proposed transaction will be $125 per share, or approximately $1.5 billion in the aggregate. If eluxadoline receives FDA approval and is not scheduled as a controlled drug by the DEA, holders of the CVR will receive $30 per share or approximately $360 million in the aggregate. If eluxadoline is designated as a Schedule 4 or Schedule 5 controlled drug by the DEA, holders of the CVR will receive $10 per share (approximately $120 million in the aggregate) or $20 per share (approximately $240 million in the aggregate), respectively.

Forest expects to divest Furiex’s royalties on alogliptin and Priligy to Royalty Pharma for a payment of approximately $415 million, which, after tax, will effectively reduce Forest’s purchase price by approximately $315 million. “Our partnership with Royalty Pharma will allow us to expand our GI franchise in a capital-efficient manner, preserving Forest capital to be deployed to areas which are core to Forest,” said Saunders.

“In partnering on this transaction, we believe Forest and Royalty Pharma have created a win-win situation,” said Pablo Legorreta, Chief Executive Officer of Royalty Pharma. “Forest will acquire a company with a very exciting GI product candidate, while Royalty Pharma will acquire the non-core passive royalty assets. Our goal is to become the M&A partner of choice for pharma and biotech companies, allowing them to focus their resources on strategic assets.”

Forest expects to use cash on hand to fund the acquisition of Furiex. Forest’s planned acquisition of Furiex is expected to close in the second or third quarter of 2014 pending regulatory review and Furiex shareholder approval and is not expected to affect the timing of Actavis plc’s previously announced acquisition of Forest. Actavis has consented to Forest’s acquisition of Furiex and supports the transaction.

Covington & Burling LLP served as Forest’s legal counsel, Furiex was advised by Kirkland & Ellis LLP and Wyrick Robbins Yates & Ponton LLP, and Royalty Pharma was advised by Goodwin Procter LLP. BofA Merrill Lynch and Credit Suisse acted as financial advisors to Furiex.

Furiex Pharmaceuticals is a drug development collaboration company that uses innovative clinical development design to accelerate and increase value of drug development programmes by advancing them through the drug discovery and development process in a cost-efficient manner.

Royalty Pharma is the industry leader in acquiring royalty interests in marketed and late-stage biopharmaceutical products, with total assets of approximately $10 billion.