Endo was outbid in developing treatment for gastrointestinal diseases because, rival, Canadian pharmaceutical Valeant, increased its offer for Salix.
Valeant increased its offer price 10 percent to $173 per share or $15.8 billion in cash -- $2 a share less than Endo's cash and stock proposal last week.
"By offering a significant premium with a 100 percent cash offer, eliminating market and company equity risk that could arise from other non-cash offers with a four month closing timeline instead of a closing by April 1st, our new arrangement creates significant shareholder value for Salix," Valeant chief executive Michael Pearson said.
The Laval, Quebec-based company's takeover of Salix will mark its first major transaction since it came up short in a hostile tender for Botox maker Allergan last year.
Allergan was eventually taken over by Actavis.
Endo, meanwhile, said in a statement that it was "disappointed with this outcome," but would move forward with its other growth plans.
The Valeant-Salix deal, which Valeant forecast would boost its revenues by 20 percent next year, is expected to close April 1.
Valeant is banking on regulatory approval for Salix's newest blockbuster drug to treat irritable bowel syndrome.