Max Grigoryev
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Max Grigoryev in Fundamentality,

ENDP is oversold: Voltaren loss is painful but insignificant.

Endo Pharmaceuticals is going down today because FDA approved Endo's Voltaren Gel generic. To get a better understanding, how this fact can impact the company's sales and financials - let's take a look at their statements. It was announced a few weeks ago, and the stock keeps going down even now.

Endo's Voltaren Gel

I would like to start this from the Endo's Q4 results presentation. Take a look at their 29 slide - the company knew that Voltaren will face a significant competition from the new market entrants. Voltaren is the first in the list of potential generic market entrants.

As we can see from their 10-K report, Endo got around $207M in sales from Voltaren Gel, which is around 30% from their pain management division and around 16% from total US branded pharmaceuticals sales.

In 2015 Endo reached $3,269M in sales, so Voltaren contributed around 6% to the total sales of the company. To be honest, if the company keeps the same sales growth rates, this 6% contribution from Voltaren will be very insignificant. During the first quarter, I assume the company earned around $50-60M in sales from Voltaren, and this reduction wouldn't be instant; I assume that by the end of the year Endo will have around $120-140M in sales from Voltaren.

Endo's generic

Amneal Pharmaceuticals announced that they got an approval from FDA for this Voltaren Gel generic. The company is saying that they are 7th largest generic pharmaceutical company in the United States with revenue exceeding $450M (as of 2013). I didn't get the exact number, because the company is private.

Even if they are 7th largest, they wouldn't be able to get 100% of the Voltaren's share from the market. Launching the sales of a new product, especially if it is a generic, always takes time. It will for sure take some time to spread the drug in the United States and start getting revenue from this product.

Short summary

I think that ENDO is super oversold, because this Voltaren gel is just 6% of the company's sales, Amneal isn't the largest generic producer in the United States, so it will take some time for sure. Management was aware of this case and it could a painful loss, but it's not as significant as it could be.