Endo Pharmaceuticals Holdings Inc. (ENDP) posted second-quarter earnings of 81 cents per share, a penny above the Zacks Consensus Estimate. The current quarter earnings were 11% above the year-ago figure of 73 cents per share.
Quarterly Details
Quarterly revenues increased 6% year over year to $396.5 million, in line with the Zacks Consensus Estimate. Robust performance across its branded business segment assisted the increase in total revenues.
Revenues from the branded segment went up 8%, reflecting a strong growth in the sales of key pain, urology and oncology products.
Revenues from the generics business declined 9% mainly due to an unfavorable year over year comparison. In the second quarter of 2009, there was a shortage of certain generic pain treatment products, which led to higher sales of Endo Pharma’s generic drugs.
Research and development (R&D) expenses increased 4.4% year over year to $28.7 million. However, selling, general and administrative (SG&A) expenses declined only slightly during the quarter to $129.2 million.
The increase in R&D expenses was primarily driven by the progress of Endo Pharma’s pipeline products.
The company repurchased $21 million worth of shares during the second quarter and about $50 million worth during the six-month ended June 30.
Outlook
For fiscal 2010, Endo Pharma reaffirmed its total revenue guidance range of $1.63 billion to $1.68 billion. However, the earnings outlook was increased to a range of $3.25 to $3.30 per share from the previous guidance of $3.15 – $3.20, as a result of favorable exchange rates.
The US healthcare reform is expected to negatively impact fiscal 2010 revenues by $20 million.
Our View
Our current Zacks #1 Rank (Strong Buy) on Endo Pharma is based on continued strong performance of the company, the acquisition of HealthTronics which should help expand the company’s urology portfolio and sustained cost control programs.
However, longer term, we have a Neutral recommendation for Endo Pharma, given the company’s limited new products to help bridge the gap when Lidoderm, which accounts for about 50% of the company’s current revenue, loses patent protection in 2015. Watson Pharmaceuticals Inc. (WPI) has already filed a paragraph IV certification with the US Food and Drug Administration (FDA) seeking approval to market its generic version of the drug. Endo Pharma is also expected to face generic competition for Opana ER from January 1, 2013.
Moreover, Endo Pharma did not receive first time approval for Fortesta. The company submitted a response to the FDA’s Complete Response Letter in early July. A positive response from the regulatory body by December 30 should be a major boost for the stock.
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