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Why Is Endo (ENDP) Down 26.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Endo International (ENDP). Shares have lost about 26.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Endo due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Endo Q4 Earnings & Revenues Beat Estimates

Endo reported better-than-expected results for fourth-quarter 2018.

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 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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -24.57% due to these changes.

VGM Scores

Currently, Endo has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Endo has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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