Recently, Endo Pharmaceuticals Holdings Inc. (ENDP) acquired privately-held Qualitest Pharmaceuticals (a generic company) for $1.2 billion in cash.

The acquisition is aimed at diversifying Endo Pharma’s business apart from bolstering its position in the generic and pain drug portfolios. At the time of announcing the deal in September 2010, Endo Pharma stated that the deal would be accretive to adjusted earnings in the first full year following its closure.

We note that this is the second major acquisition completed by Endo Pharma in as many months. Last month, Endo Pharma acquired Penwest Pharmaceuticals Co. for approximately $144 million or $5.00 per share in cash. Through this deal, which was announced in August 2010, Endo Pharma aims to sustain and drive growth in the area of pain management.

The acquisition of Penwest provides Endo Pharma full access to a painkiller, Opana ER, which was being co-developed by the companies. The drug aims to treat moderate to severe pain in patients requiring continuous opioid treatment.

2010 Outlook Adjusted, 2011 Projection Backed

Apart from announcing the completion of the Qualitest deal, Endo Pharma boosted its guidance for 2010 while reiterating the 2011 forecast. The company expects to earn (excluding special items) in the range of $3.35-$3.40 on revenues of approximately $1.7 billion as opposed to the previous earnings forecast of $3.30 – $3.35 per share on revenues of $1.63 billion – $1.68 billion in 2010. The Zacks Consensus Estimate for 2010 is $3.34 per share on revenues of $1.67 billion.

The company, which competes with players like King Pharmaceuticals Inc. (KG), Cephalon Inc. (CEPH) among others, backed its 2011 guidance. Endo Pharma continues to expect 2011 earnings (excluding special items) in the range of $4.15 – $4.25 per share on revenues of $2.2 billion – $2.3 billion. The Zacks Consensus Estimate for 2011 is $4.20 per share on revenues of $2.19 billion.

Our Recommendation

Currently, we have a long-term Neutral stance on Endo Pharma. The stance is supported by the Zacks #3 Rank (short-term Hold rating) carried by the company.

 
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