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Endo (ENDP) Stock Declines Despite Q3 Earnings & Revenue Beat

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Endo (ENDP) Stock Declines Despite Q3 Earnings & Revenue Beat

Endo (ENDP) tops revenues and earnings expectations in the third quarter and raises its annual view. However, the results from the cellulite treatment trial are disappointing.

Shares of Endo International plc ENDP fell 17.7% even after the company reported better-than-expected results for the third-quarter 2018 results and raised its annual guidance.

The year-over-year decline continues to deepen. Moreover, investors were also disappointed with the company’s plans to launch its cellulite treatment in 2020.

Nevertheless, Endo’s stock has gained 70.2% in the year so far, against the industry’s 3.8% decline.


Earnings from continuing operations were 71 cents per share, which beat the Zacks Consensus Estimate of 59 cents. However, earnings declined from 91 cents recorded in the year-ago quarter.

Revenues came in at $745 million in the quarter, surpassing the Zacks Consensus Estimate of $696.9 million. However, the top line was down 5% year over year due to competitive pressures and product discontinuations in the U.S. Generic Pharmaceutical segment, divestiture of the company's Mexican business named Somar, and the voluntary market withdrawal of OpanaER.

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 $258 million in the quarter, down 12% due to competitive pressures in the generic business and previously announced product discontinuations, partially offset by the launch of colchicine tablets. We note that in July 2018, Endo launched colchicine tablets, the authorized generic of Colcrys.

U.S. Branded Pharmaceuticals (Specialty & Established Pharmaceuticals) sales were down 6% to $220.1 million due to cessation of product shipments of Opana ER in the third quarter of 2017. Specialty Products revenues increased 13%, driven by strong performance of Xiaflex.  Xiaflex sales increased 22% year over year, reflecting strong volume growth of the product for the indication of Dupuytren's Contracture and Peyronie's Disease.

The company also 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.

Additionally, the RELEASE-1 study passed all the eight key secondary endpoints and the RELEASE-2 study passed seven out of eight key secondary endpoints. Regulatory and pre-commercialization activities are already underway and the company targets a market launch in the second half of 2020.

U.S. Branded Sterile Injectables’ sales of $237.1 million was up 17%, driven by strong growth of Adrenalin (up 40%) and Vasostrict (up 6%). In July, the segment launched ertapenem for injection, the authorized generic of Merck's MRK Invanz, which boosted sales.

In April, Endo entered into definitive agreements to acquire Somerset Therapeutics, LLC, a specialty pharmaceutical company that develops and markets sterile injectable and ophthalmic drugs for the U.S. market, and the business of its affiliate Wintac Limited, which operates as Somerset Therapeutics' contract developer and manufacturer. The acquisitions will close in the first quarter of 2019. 

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 $30.2 million, down from $56.4 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 Outlook Updated

Endo now expects revenues between $2.87 billion and $2.92 billion in 2018 (earlier estimate: $2.75 billion and $2.85 billion). The company expects Xiaflex’s full-year revenue growth to be in the low-20s (earlier estimate: high-teens percentage range).

Branded Sterile Injectables revenues are now expected to grow in the low 20% range. U.S. Generics revenues for 2018 are projected to decline in the mid-30s percentage range. International Pharmaceuticals is estimated to decline approximately 40%.

The company anticipates earnings from continuing operations to be $2.65-$2.75 per share (earlier estimate: $2.50-$2.60).

Our Take

Endo’s third-quarter results were driven by continued momentum in Xiaflex and sterile injectables. Xiaflex’s performance was outstanding, propelled by demand. The company is in the process of redefining its business, given the persistent decline in the Generic business, which is expected to face challenges.

The focus now is on sterile injectables and Xiaflex. The U.S. Branded Sterile Injectables and U.S. Generics Pharmaceuticals segments collectively launched 10 new products year to date.

However, investors were not much impressed with the year-over-year decline in earnings and revenues. The huge level of debt is a concern.  Moreover, response rates from the CCH trials did not impress the investors either.

Zacks Rank & Stocks to Consider

Endo currently carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the healthcare sector are Gilead Sciences Inc. GILD and Bristol-Myers Squibb Co. BMY. Both sport a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Gilead’s earnings per share estimates increased from $6.58 to $6.87 for 2018 over the past 60 days. Estimates for 2019 are also up by 27 cents.

Bristol-Myers’ earnings per share estimates have increased from $3.59 to $3.84 for 2018 and from $3.83 to $4.07 for 2019 over the past 60 days.

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