In a bid to establish its presence in the highly sought after Indian market, US based Endo Health Solutions Inc. (ENDP) recently inked a deal with GVK Biosciences., Based in India, GVK Biosciences is Asia’s leading drug discovery research and development contract research organization.
As per the terms of the deal, the Indian company will be responsible for the delivery of a clinical candidate by utilizing its discovery expertise. Endo Health will be responsible for developing and commercializing the above candidate. GVK Biosciences stated in its press release that the deal emanated from its newly launched concept-Early Discovery Assets.
We note that Endo Health is going through a rough patch. In Jan 2013, the company issued a lackluster 2013 guidance. Endo Health announced that it expects to end 2013 with adjusted earnings in the range of $4.40 -$4.70 per share (old guidance: $5.20-$5.40 per share).
We believe that the entry of a generic competitor, Actavis, Inc. (ACT), for Endo Health’s lead drug Lidoderm in Sept 2013 is primarily responsible for the disappointing guidance. Moreover, another key drug at Endo Health, Opana ER is already facing generic competition. Generic threat looms over many other key drugs at Endo Health.
We believe that Endo Health is targeting the high potential Indian “emerging” market through this deal to combat the above mentioned challenges. Emerging markets are gradually gaining more importance and several companies are now shifting their focus on these areas. According to the IMS Institute, spending on medicines in "pharmerging" markets will almost double to $345 billion - $375 billion in five years from $194 billion in 2011.
Endo Health currently carries a Zacks Rank #5 (Strong Sell). Not all stocks are performing as poorly as Endo Health. Favorably placed pharma stocks include Valeant Pharmaceuticals (VRX) and Salix Pharmaceuticals (SLXP). Both companies carry a Zacks Rank #1 (Strong Buy).
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