Good News Buoys Endo Pharma - Analyst Blog

Recently, the US Food and Drug Administration (FDA) helped boost Endo Pharmaceuticals' (ENDP) generic portfolio by approving dexamethasone elixir and Orsythia tablets.

Dexamethasone elixir is approved to treat patients suffering from endocrine disorders, rheumatic disorders and collagen diseases. Orsythia tablets are approved to prevent pregnancy in women who use oral contraceptives.  

The two generic drugs were added to Endo Pharma's portfolio with the acquisition of Qualitest Pharmaceuticals (a generic company) late last year for $1.2 billion in cash. The acquisition diversified Endo Pharma's business and bolstered its position in the generic and pain drug portfolios.

Endo Pharma projects sales from the generic segment to grow at a compounded annual growth rate of at least 15% within the time period of 2010-2012.  Endo Pharma has approximately 49 abbreviated new drug applications (ANDAs) under review by the FDA.

The company filed 3 ANDAs in the first quarter of 2011 and intends to file 11 more ANDAs in 2011. Endo Pharma expects 14 ANDAs to be cleared in 2011.

We note that Endo Pharma is on an acquisition spree to expand its business. Apart from the Qualitest purchase, Endo Pharma completed two more major acquisitions in 2010. Endo Pharma acquired Penwest Pharmaceuticals Co. to sustain and drive growth in the area of pain management and HealthTronics Inc., a provider of urology products and services. 

In April 2011, Endo Pharma 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. The deal is expected to close in the third quarter of 2011. We believe that these acquisitions are measures to counter the loss of revenues due to the generic threat looming over Endo Pharma.

Our Recommendation

Currently, we have a Neutral stance on Endo Pharma in the long-run. The stock carries a Zacks #3 Rank (Hold recommendation) in the short-run.