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Endo (ENDP) Lags Q1 Earnings Estimates, Cuts 2016 Outlook

Endo International plc’s ENDP first-quarter 2016 earnings of $1.08 per share fell short of the Zacks Consensus Estimate of $1.05 and decreased 8% from the year-ago period. 

Revenues came in at $963.5 million in the first quarter of 2016, up 35% year over year. Revenues were however slightly below the Zacks Consensus Estimate of $964.4 million.
The Quarter in Details

The company reports results through three segments – Branded Pharmaceuticals (U.S.), Generic Pharmaceuticals (U.S.) and International Pharmaceuticals.

U.S. Branded Pharmaceuticals sales were up 9% to $309 million, primarily attributable to  the acquisition of Auxilium Pharmaceuticals. While Voltaren Gel sales declined 21%, reflecting the loss of exclusivity in Mar 2016, Xiaflex sales increased 57% due to continued demand. Moreover, the Branded pain product portfolio was unfavorably impacted by public policy pressures related to the prescribing of opioids.

Endo reported generic product net sales of $583 million in the quarter, up 63%. The addition of Par Pharmaceuticals’ (Sep 2015) products and growth of certain products led to higher segmental sales. Compared to prior expectations, revenues in U.S. Generic Pharmaceuticals were adversely impacted by delayed regulatory actions related to certain 505(b)(2) products as well as increased pricing pressure due to increased competition across pain and other commoditized products within the legacy Qualitest portfolio.

The International Pharmaceuticals division contributed $71 million to total revenue in the first quarter compared with $85 million in the preceding quarter.

Cuts 2016 Outlook

Considering the impact of several headwinds including greater-than-expected price erosion across the Generics sector, delays on regulatory actions related to certain Endo products and an earlier-than-expected generic entrant for Voltaren Gel, the company lowered its outlook for 2016.

The company now expects revenues in the range of $3.87 billion to $4.03 billion (old guidance: $4.32 billion to $4.52 billion). The Zacks Consensus Estimate for revenues is currently $4.31 billion. It now expects earnings in the range of $4.50 to $4.80 per share (old guidance: $5.85 to $6.20 per share). The Zacks Consensus Estimate for earnings is currently $5.76 per share.

Gross margin is now expected in the range of approximately 59–60% (old guidance: approximately 63–65%).

Restructuring Announced

As part of Endo's ongoing Generics business integration and optimization efforts, the company announced an accelerated restructuring of its Generics product and R&D portfolio, as well as its manufacturing facility network. This restructuring is expected to result in approximately $60 million in annualized net run-rate savings by the fourth quarter of 2017 and is expected to result in the closure of the company's facility in Charlotte, NC, and a workforce reduction at its facility in Huntsville, AL. The restructuring will be completed by the third quarter of 2017.

The company, however, continues to expect to launch approximately 30 products from its newly combined pipeline in 2016 and to file approximately 25 to 30 abbreviated new drug applications with the FDA.

Meanwhile, Endo will continue to prioritize its resources across key growth products in the U.S. Branded Pharmaceuticals business – Xiaflex and Belbuca.

Our Take

Endo’s first-quarter results were discouraging with the company missing both top- and bottom-line estimates. Though Generic and Branded segment revenues increased year over year, earlier-than-expected entry of Voltaren Gel generic and continued pricing and competitive pressures across commoditized and pain products are concerning. However, restructuring initiatives undertaken by the company are encouraging. Prioritization of resources across Belbuca and Xiaflex should help drive the products’ sales.

Endo is a Zack Rank #4 (Sell) stock. Some better-ranked stocks in the health care sector include ANI Pharmaceuticals, Inc. ANIP, Retrophin, Inc. RTRX and Vital Therapies, Inc. VTL. All three stocks sport a Zacks Rank #1 (Strong Buy).

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