We are initiating coverage on Endo Pharmaceuticals (ENDP) with a Neutral recommendation and a target price of $37.00.
Headquartered in Chadds Ford, Pennsylvania and founded in 1997, Endo Pharma is a specialty healthcare solutions company. The company, which operates in the US, reports results through three segments: Branded Pharmaceuticals, Generics and Devices and Services. The three segments contributed 86%, 9% and 5%, respectively, to total revenues of $1.72 billion reported in 2010. Endo Pharma offers more than 175 products in the areas of pain management, urology and oncology.
In February 2011, Endo Pharma reported its fourth quarter and full-year 2010 results. Fourth quarter earnings of $1.06 per share beat the Zacks Consensus Estimate by $0.10.The impressive showing was attributable to higher revenues. (Read our full coverage on the earnings report at: Endo Pharma Tops, Guides Up ).
Endo Pharma is on an acquisition spree to expand its business, having completed three major acquisitions in 2010. In December 2010, Endo Pharma purchased Qualitest Pharmaceuticals. In November 2010, Endo Pharma acquired Penwest Pharmaceuticals Co. and in July 2010 it acquired HealthTronics Inc.
Moreover, in January 2011, Endo inked a deal with Orion Corporation, a European research & development based pharmaceutical and diagnostic company, to develop its oncology portfolio.
We note that Endo Pharma has a strong product portfolio which should drive growth in the coming quarters. The portfolio was strengthened further by the US launch of Fortesta Gel for treating men (above 18 years of age) with low levels of testosterone (hypogonadism) in March 2011. Fortesta Gel, which contains 2% testosterone, will compete mainly with Abbott Laboratories’ (ABT) AndroGel.
Another important product at Endo Pharma, Emoquette, for the prevention of pregnancy, gained US approval in March 2011. The approval of the oral contraceptive, the generic version of Johnson & Johnson’s (JNJ) Ortho-Cept, further strengthens Endo’s portfolio.
However, the lack of near-term catalysts concerns us, especially with its lead product Lidoderm slated to go off patent in 2015. The recent patent challenge to Lidoderm by Mylan Inc. (MYL) is another test for Endo Pharma.
Apart from the generic threat, pipeline setbacks like the complete response letter (CRL) received for the new formulation of Opana ER limit the upside potential from current levels. Consequently, we initiate coverage on Endo Pharma with a Neutral recommendation.
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