Endo Pharma Evenly Poised - Analyst Blog

We are maintaining our Neutral stance on Endo Pharmaceuticals (ENDP) with a target price of $44.00.

Headquartered in Chadds Ford, Pennsylvania and founded in 1997, Endo Pharma is a specialty healthcare solutions company. The company, which operates in the US, reports results through three segments: Branded Pharmaceuticals, Generics and Devices and Services. Endo Pharma offers more than 175 products in the areas of pain management, urology and oncology.

In April 2011, Endo Pharma reported its first quarter 2011 results. First quarter adjusted earnings of $1.00 per share were in line with the Zacks Consensus Estimate but $0.26 above the year ago figure.

The year-over-year rise in earnings was attributable to the higher revenues reported in the first quarter of 2011. (Read our full coverage on the earnings report at: Endo Pharma Q1 Result Matches Est.)

We note that Endo Pharma is on an acquisition spree to expand its business. In April 2011, the company announced that it will purchase American Medical Systems (AMMD), a leading pelvic-health devices provider, for $2.9 billion or $30.00 per share in cash, having completed three major acquisitions in 2010.

We believe that these acquisitions along with the impending purchase of American Medical are steps in the right direction to counter the loss of revenues due to the generic threat hanging over Endo Pharma.

Endo Pharma boasts of a strong product portfolio which should drive growth in the coming quarters. The portfolio was strengthened further by the US launch of Fortesta Gel for treating men (above 18 years of age) with low levels of testosterone (hypogonadism) in March 2011. The entry of Fortesta Gel into the market has widened the treatment options for hypogonadism patients.

The disorder affects approximately 14 million men in the US. However, only approximately 9% are being treated.  In March 2011, Endo received further good news when the US Food and Drug Administration (FDA) approved its oral contraceptive, Emoquette, for the prevention of pregnancy. The approval of the oral contraceptive, the generic version of Johnson & Johnson's (JNJ) Ortho-Cept, further strengthens Endo's portfolio.

However, the lack of near-term catalysts concerns us, especially with its lead product Lidoderm slated to go off patent in 2015. The patent challenge to Lidoderm by Mylan Inc. (MYL) is another test for Endo Pharma.

Apart from the generic threat, pipeline setbacks like the complete response letter (CRL) received for the new formulation of Opana ER limit the upside potential from current levels. Consequently, we maintain our Neutral recommendation on the stock.