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Endo (ENDP) Q4 Earnings & Revenues Beat Estimates, Shares Up

Zacks Equity Research

Shares of Endo International plc ENDP increased 6.2% after the company reported better-than-expected results for fourth-quarter 2018.

Endo’s stock has lost 13.1% in the past three months.

Endo International plc Price, Consensus and EPS Surprise

Endo International plc Price, Consensus and EPS Surprise | Endo International plc Quote

Earnings of 75 cents easily beat the Zacks Consensus Estimate of 59 cents. However, earnings declined from 77 cents recorded in the year-ago quarter.

Revenues came in at $786.4 million in the quarter, surpassing the Zacks Consensus Estimate of $744.2 million and increasing 2% from the year-ago quarter’s figure. This increase was primarily attributable to continued strong growth in the U.S. Branded - Sterile Injectables segment and the Specialty Products portfolio of our U.S. Branded - Specialty & Established Pharmaceuticals segment.

Quarterly Highlights

Endo now has four reportable business segments: (1) U.S. Generic Pharmaceuticals, (2) U.S. Branded - Specialty & Established Pharmaceuticals, (3) U.S. Branded Sterile Injectables and (4) International Pharmaceuticals.

U.S. Generic Pharmaceuticals recorded sales of $263.8 million in the quarter, down 13% due to competitive pressures in the generic business.

U.S. Branded Pharmaceuticals (Specialty & Established Pharmaceuticals) sales were up 1% to $229.8 million, driven by continued strong growth of Specialty Products portfolio, offset by ongoing generic competition in Established Products portfolio. Specialty Products revenues increased 15% to $143 million, driven by the continued strong performance of Xiaflex. Sales of Xiaflex increased 30% to $80 million, owing to underlying volume growth in both Peyronie's Disease and Dupuytren's Contracture indications, and a benefit from the timing of shipments compared to prior year.

Earlier, Endo reported positive results from two phase III trials of collagenase clostridium histolyticum (CCH) for the treatment of cellulite in the buttocks. The results demonstrated that subjects receiving CCH showed highly statistically significant levels of improvement in the appearance of cellulite with treatment, as measured by the trial's primary endpoint.

U.S. Branded Sterile Injectables’ sales of $259.1 million was up 32%, driven by strong growth of Adrenalin and Vasostrict. In July, the segment launched ertapenem for injection, the authorized generic of Merck's MRK Invanz, which boosted sales.

Endo has decided to terminate its previously announced acquisition of Somerset Therapeutics, LLC, a New Jersey-based specialty pharmaceutical company, and the business of its India-based affiliate Wintac Limited, which operates as Somerset Therapeutics' contract developer and manufacturer. The decision was taken as certain regulatory approvals in India took longer than anticipated and the company lacks clarity on when those approvals could be received.

Earlier, Endo also entered into an exclusive licensing agreement with Nevakar, a specialty pharmaceutical company developing multiple assets in the ophthalmic and injectable areas. Both companies have collaborated for the development of five differentiated, sterile injectable products in the United States and Canada. While Nevakar will develop and seek FDA approval for these products, Endo's Par Pharmaceuticals Sterile Products division will launch and distribute them upon approval.

The International Pharmaceuticals division generated sales of $34 million, down from $41 million in the year-ago quarter due to recent divestitures. Endo sold Mexican subsidiary, Somar to Advent International in October 2017. Endo also sold its South African subsidiary, Litha Healthcare Group in July 2017.

2018 Results

Endo’s revenues came in at $2.9 billion, down 15% from 2017, but were in-line with the Zacks Consensus Estimate. Earnings per share of $2.89 were down from $3.84 in 2017 and easily beat the Zacks Consensus Estimate of $2.73. 

2019 Outlook

Endo expects revenues between $2.76 billion and $2.96 billion in 2019. The company expects Xiaflex’s full-year revenues to grow mid-to-high teens.

Branded Sterile Injectables revenues are now expected to grow high single to low-double digits. U.S. Generics revenues are projected to decline mid to high teens. International Pharmaceuticals’ revenues are estimated to decline approximately 20% due to the impact of generic competition in the business in Canada.

The company anticipates earnings from continuing operations to be $2.00-$2.25 per share.

Our Take

Endo’s fourth-quarter results were positive as the company beat on both earnings and sales. The last year was a transitional year for Endo as it transformed its legacy-branded pharmaceutical business, which was primarily focused on pain-management, into a highly focused branded specialty pharmaceutical business in the United States.

The company has divested its non-core assets and businesses, and repositioned its generics business in the United States by executing a comprehensive product portfolio and manufacturing footprint rationalization initiative.

However, the guidance wasn’t impressive as the company expects continued competitive pressure for the generic business. The huge level of debt is a concern.  Moreover, response rates from the CCH trials did not impress the investors earlier.

Zacks Rank & Stocks to Consider

Endo currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks are Celgene Corp. CELG and BioDelivery Sciences International, Inc. BDSI. Both the stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Celgene’s earnings per share estimates have increased from $10.21 to $10.75 for 2019 and from $11.63 to $12.70 for 2020 in the past 60 days.

BioDelivery Sciences’ loss per share estimates has narrowed from 25 cents to 22 cents for 2019 in the past 60 days.

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