Market Overview

Is Endo Pharmaceuticals Going to Seize Market Share?


One of the few things that pharmaceutical companies live for is to release life-changing drugs onto the public market. While pharmaceuticals do not expect to debut blockbuster drugs every year, they always hope to find a drug that will have large effects on patients across the world. The added effects on the top-line do not hurt either.

The process to release a drug for public is long and arduous in the United States. Pharmaceuticals have to submit their drugs to trials overseen by the Food & Drug Administration. FDA trials often take over a year to complete, some taking much longer. In the case with Endo Pharmaceuticals (NASDAQ: ENDP), FDA trials have been very positive.

On December 12, Endo Pharmaceuticals received FDA approval for a drug called Opana ER. This new iteration of Opana is now crush-resistant, meaning that patients will be safe when administering the drug and will be able to better control dosage. This is not Endo Pharma's only victory in recent history, however.

On November 28, Endo received FDA approval for Myzilra tablets, which is Endo's brand of oral contraceptives. While the contraceptive market is fairly saturated, Endo may be able to flex its international arms and subsidiaries to market the drug. If it is able to differentiate itself through milder side effects, Myzilra may be able to make headwinds in the United States market as well.

In the beginning of November, Endo Pharmaceuticals received FDA approval for Felodipine, a generic tablet meant to treat high blood pressure. As AstraZeneca (NYSE: AZN) lost patent protection for its Felodipine drug, Endo is in a prime position to take over market share. Endo Pharma has the chance to ramp up revenues in the hundreds of millions, as long as it markets its drugs properly.

Investors have to remember that Endo Pharmaceuticals already has an impressive patent portfolio, including drugs such as Lidoderm, Percocet, and Valstar. Investors need to consider that Endo Pharma may significantly bolster its product offerings with these new FDA approvals, but that it may take time for the company to realize physical revenues. As such, investors need to keep up with the news to be able to make timely trades and benefit from new developments.

Endo Pharmaceuticals is currently trading at about $36, up almost 1% for the year.


Bullish View:
Traders who believe that Endo Pharmaceuticals will greatly benefit from its new drugs might want to consider the following trades:

  • Long Endo Pharma by purchasing shares or call options. Endo currently appears to be close to a technical support level, so now may be a good time to buy.
  • Short another similar company, like Mylan (NASDAQ: MYL). You could short this company to hedge a long ENDP trade or to accentuate your belief that Endo Pharma will continue to dominate the specialty pharmaceuticals market.
  • Long an ETF like the Health Care SPDR (NYSE: XLV). If a significant industry like pharmaceuticals is doing well, health care itself will probably do well.

Bearish View:
Traders who believe that Endo Pharmaceuticals will not significantly benefit from its new products may consider the following positions:

  • Short Endo Pharma until it reaches $32, which is the next, lower technical support level. The next support level appears to be at about $30.
  • Long a competitor like Watson Pharmaceuticals (NYSE: WPI), as someone bearish on Endo may believe that a large-cap competitor is more likely to garner market share.
  • Buy put options as Endo Pharmaceuticals' earnings announcement comes along. The company may not be able to sustain its costs as crude oil rallied significantly in Q3 2011.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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