Orexo will splash out to the tune of SEK856m (€94m) on fellow Swedish pharma company Biolipox, thus adding four new projects to its pipeline and creating a firm that specialises in pain management and respiratory diseases.
The deal is expected to be completed by November.
Håkan Åström, chairman of Orexo, said: "The combination of Orexo and Biolipox will create a larger and more robust pharmaceutical company with a broad and attractive product pipeline.
Orexo's business model, combined with the Biolipox innovative research pipeline is an exciting combination to create value."
Up until now, the whole of Orexo's pipeline was based on new formulations or delivery systems for existing drugs, and while Biolipox's pipeline does contain a novel formulation drug - a nasal-spray formulation of cetirizine - it also contains compounds developed in-house.
Biolipox specialises in arachidonic acid research - an omega-6 fatty acid that is the source of several molecules of medical importance, including ones that play a central role in the development of inflammatory diseases.
The company was founded by two professors from Karolinska Institutet after the discovery of a new family of arachidonic acid products with inflammatory effects - eoxins.
Indeed, it has a potential drug in preclinical development that prevents the formation of eoxins through blocking the action of an enzyme that catalyses the first step in the metabolism of arachidonic acid to eoxins.
They also have a preclinical programme aimed at blocking the formation of pro-inflammatory enzyme prostaglandin E2 (PGE2), which can cause pain and fever.
This is done through a new mechanism designed to allow anti-inflammatory prostaglandins to continue being formed.
The target of the inhibitor is mPGE synthase, an enzyme that produces PGE2 at the site of inflammation.
One of the major advantages of a selective PGE2 synthase inhibitor is that even though the drug may be totally new, the mechanism is already known to be important in inflammatory disease.
This approach mirrors that of UK biopharma firm Hunter-Fleming, which has developed its own anti-inflammatory drug, HF0220, which attempts to block PGE2, while leaving 'good' prostaglandins, such as PGJ2, intact - although its exact target of the drug remains undisclosed.
The final string to Biolipox's bow is an earlier stage programme looking into developing a dual effect respiratory drug with potentially both bronchodilatory and anti-inflammatory properties, to treat chronic obstructive pulmonary disease (COPD) Orexo, meanwhile, currently has two products on the market: Diabact and the Heliprobe System, both of which are breath tests for the stomach-ulcer bacterium, Helicobacter pylo ri.
It also has three more drugs in late-stage trials: Rapinyl, a fast-dissolving sublingual reformulation of the pain killer fentanyl; Sublinox, a similar concept only with the active ingredient zolpidem - a very common insomnia drug; and gastro oesophageal reflux disease drug (GORD or GERD)
OX17, which is a combination of two well-proven active substances that each inhibit acid secretion in the stomach: an H2-receptor blocker and a proton pump inhibitor (PPI).
Orexo has said it will seek partners at an early stage, in order to reduce risk but hasn't disclosed whether any projects will be dropped.
It did say that late-stage development projects would be a priority as well as others that would " be evaluated by company management
[in order to achieve] tangible synergies and efficiency gains."
"We see this deal as an important step forward in achieving a broader product pipeline that will bring us closer to our vision of creating a formidable specialty pharma company," said Zsolt Lavotha, CEO of Orexo.