Just as it reported record revenues for its 2007 fiscal year, gastrointestinal specialty pharmaceutical company Axcan Pharma Inc. entered an agreement to be acquired by investment firm TPG Capital in an all-cash deal worth $1.3 billion.

That agreement calls for TPG to acquire all outstanding common shares of Axcan for $23.35 per share. The price represents a significant premium over the company's Wednesday closing price of $18.20, and its shares (NASDAQ:AXCA) soared to new 52-week highs on Thursday before closing at $22.70, up $4.50, or 25 percent, for the day.

Laurence Terrisse-Rulleau, an analyst with Blackmont Capital, called the deal fairly valued. "It's not a great deal and not a cheap deal," she told BioWorld Today. She added that she thinks the timing for the deal is right for two reasons: first, because Axcan is not likely to be able to duplicate its record 2007 growth in 2008, and second, because reaching the next level of growth would require a risky and potentially dilutive acquisition.

RBC Capital Markets analyst Philippa Flint agreed that the price for the deal appears fair. In a research note, she added that she doesn't believe any competing bids will be placed on the table.

Axcan's board of directors unanimously approved the deal, which is expected to close in the first quarter of 2008, pending shareholder approval and customary closing conditions. After the close, Axcan's stock will be delisted from all exchanges, but everything else will be "business as usual," according to Isabelle Adjahi, senior director of investor relations and communications at Mont-Saint-Hilaire, Quebec-based Axcan.

Adjahi said Axcan's stock has been under pressure from investors concerned about generic competition, even though Axcan believes its products "will continue to grow" and has life-cycle management plans in place. The TPG deal will relieve those investor pressures and allow Axcan to "focus on the long term," she added.

However, Flint raised concerns that TPG may be buying Axcan for its cash flow, and as a result, may cut research and development. Axcan declined to provide much additional information on the deal and cancelled its upcoming analyst day, earnings call and conference appearances.

Concurrent with announcing the TPG deal, Axcan reported earnings for its fourth quarter and fiscal year ended Sept. 30. Cash, equivalents and short-term investments totaled $309.6 million at Sept. 30, proving that the TPG deal was "not done because we were dying for cash," Adjahi noted.

Net income for the quarter was $16.8 million, or 30 cents per share, up from 17 cents per share in the same period last year and beating analyst estimates of 26 cents per share. For the year, net income was $71.5 million, or $1.33 per diluted share, up from 79 cents per diluted share in 2006 and beating analyst estimates of $1.31 per share.

Axcan also posted record revenues of $348.9 million for fiscal year 2007, beating its guidance of $335 million to $343 million as well as analyst estimates of $340.3 million. That revenue came from a variety of gastrointestinal products marketed in the U.S. and Europe, but the strongest performers were URSO Forte and URSO 250 (ursodiol tablets) for primary biliary cirrhosis, with $77 million in U.S. sales; Canasa (mesalamine) for active ulcerative proctitis, with $65.1 million in U.S. sales; Carafate (sucralfate) for active duodenal ulcer disease, with $50.2 million in U.S. sales; and Ultrase (pancrelipase) for exocrine pancreatic insufficiency, with $47.9 million in U.S. sales.

Each of those four products saw sales growth top 20 percent in 2007.

For 2008, Terrisse-Rulleau said she's looking forward to seeing the performance of Pylera (bismuth subcitrate potassium, metronidazole, and tetracycline HCl), which recently was launched in the U.S. for the eradication of Helicobacter pylori.

She also will be keeping a close eye on the pancreatic enzyme replacement market, which is poised to undergo some big changes. In 2004, the FDA said all pancreatic insufficiency drugs on the market would need to obtain FDA approval by 2008, a deadline later extended until 2010. Generics account for about half of that market, and Terrisse-Rulleau said so far none of them have stepped up to pursue FDA approval, leaving an opening for branded products.

Axcan submitted a new drug application for Ultrase in 2007 and is conducting clinical trials to support an NDA filing for Viokase (pancrelipase), its other marketed pancreatic insufficiency drug. But other branded products like Creon (Solvay Pharmaceuticals Inc.) and Pancrease MT (McNeil Consumer & Specialty Pharmaceuticals) will continue to offer competition, and new products are expected from Eurand International SpA and Altus Pharmaceuticals Inc.

Axcan also is conducting a Phase III trial with a high-concentration version of Canasa, planning a Phase IIb trial with Cx401 for perianal fistulas, and advancing other programs through preclinical and early clinical studies.