Endo Pharmaceuticals Holdings Inc.’s (ENDP) third quarter 2010 earnings (excluding special items) of 86 cents per share surpassed the Zacks Consensus estimate by a penny and the year-ago earnings by 23 cents. On a reported basis (including special items), earnings climbed 9.5% to 46 cents. Earnings were driven by a strong surge in revenues in the reported quarter.

Revenues climbed 23% to $444.1 million in the reported quarter driven by an 8% rise in the sale of branded drugs.  Revenues edged past the Zacks Consensus Estimate of $443 million. The quarter witnessed impressive sales of pain, urology and oncology therapies and revenue from generic drugs registered an increase of 20%.

2010 Outlook Backed; 2011 Projection Provided

Apart from disclosing third quarter results, Endo Pharma provided guidance for 2010 and 2011. The company continues to expect to earn (excluding special items) in the range 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 $3.33 per share on revenues of $1.67 billion.

The company expects to earn (excluding special items) in the range of $4.15 – $4.25 per share on revenues of $2.2 billion – $2.3 billion in 2011. The Zacks Consensus Estimate for 2011 is $4.20 per share on revenues of $2.20 billion.

Endo Pharma Completes Penwest Buy, Qualitest in Queue

Recently, 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 deal 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.

We note that Endo Pharma is on a buying spree. Apart from Penwest, Endo Pharma announced in September 2010 that it will take-over the privately-held Qualitest Pharmaceuticals (a generic company) for $1.2 billion in cash.

The impending acquisition is aimed at diversifying Endo Pharma’s business apart from bolstering its position in the generic and pain drug portfolios. Endo Pharma anticipates the deal to be accretive to adjusted earnings in the first full year following its closure.

In another positive development, the US Food and Drug Administration (FDA), which will review the New Drug Application (NDA) for Endo Pharma’s oral formulation of long-acting pain drug oxymorphone on a priority basis (action date: January 7, 2011), dismissed the need for a meeting of its advisory panel. The decision was prompted by the FDA’s belief that it has enough information on the candidate at its disposal to decide on the NDA without external help.

Our Recommendation

Currently, we have a neutral stance on the stock in the long-run, which is supported by the Zacks #3 Rank (short-term Hold recommendation) carried by the company.

 
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