Note: This report contains substantially new material. Subsequent reports will have changes highlighted.
Reason for Report: 4Q17 Earnings Results
Previous Edition: Jan 10: 3Q17 Earnings Update (share price and broker material considered till Dec 20, 2017).
Brokers’ Recommendations: Neutral: 73.7% (14 firms); Positive: 26.3% (5); Negative: 0% (0) Prev. Ed.: 8; 5; 0
Brokers’ Target Price: $10.57 (↓$6.93 from the last edition; 15 firms) Brokers’ Avg. Expected Return: 31.9%
*Note: Though datedApr 25, share price and broker material are as of Dec 20, 2017
Note: The tables below (Revenue, Margins, and Earnings per Share) contain material from fewer brokers than in the Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying spreadsheet models.
Portfolio Manager Executive Summary
Endo International plcis a global specialty pharmaceutical company focused on branded and generic products. The company’s portfolio consists of products like Lidoderm (pain associated with post-herpetic neuralgia/PHN), Frova (migraine), Opana ER (chronic severe pain), Voltaren gel (osteoarthritis pain) and Belbuca (chronic pain). The company also added Xiaflex (Dupuytren's contracture and Peyronie's disease), Testopel (testosterone replacement therapy)and Stendra (erectile dysfunction) to its portfolio following the Auxilium acquisition in January 2015.
Of the 19firms covering the company, 73.7% (14 firms) assigned neutral ratings and26.3% (five) providedpositive ratings on the stock. Notably, none of the firms was negative on Endo.
Neutral outlook(14/19 firms):They prefer to remain on the sidelines until they get more visibility on the company’s developmental efforts. The firms also believe that the performance of Xiaflex and the recently launched drug Belbuca will drive revenues in the future. However, the withdrawal of Opana ER from the market will also impact revenues. The firms believe that the generic business will continue facing challenges and the company’s strategy to shift into alternative generic dosage forms will take time to play out.
Positive outlook (5/19 firms):The bullish firms are encouraged by Endo’s acquisition of Auxilium.
Mar 6, 2018
Overview
Endo International plcis a global specialty health care company. It came into existence following the acquisition of Paladin Labs in February 2014. Since its inception, the company has completed multiple acquisitions.
In October 2015, the company acquired a broad portfolio of branded and generic injectables and established products from a subsidiary of Aspen Holdings from GlaxoSmithKline. In September 2015, the company acquired Par Pharmaceutical. In August 2015, the company sold its Men's Health and Prostate Healthbusinesses to Boston Scientific for $1.65 billion, which included $1.6 billion upfront payment and $50 million cash contingent on Boston Scientific achieving certain product revenue milestones.
In January 2015, Endo acquired Auxilium Pharmaceuticals for approximately $2.6 billion in a cash-and-stock transaction.
In February 2014, Endo successfully completed the acquisition of Boca Pharmacal, followed by the buyouts of Grupo Farmaceutico Somar in July 2014 and DAVA Pharmaceuticals in August 2014.
Endo reports results under three segments —Branded Pharmaceuticals (U.S.), Generic Pharmaceuticals (U.S.) and International Pharmaceuticals. The company has its global headquarters in Dublin, Ireland and U.S. headquarters in Malvern, PA.
The company’s website address is
The firms have identified the following factors for evaluating the investment merits of Endo:
Key Positive Arguments / Key Negative ArgumentsThe acquisition of Paladin Labs is a positive for the company. The acquisition has boosted the company’s product portfolio which should drive growth. Moreover, the acquisition of Auxilium is a major boost for the company as it will help Endo diversify its business in areas like urology and orthopedics. In addition, the acquisition of Par Pharmaceutical will lead to double-digit revenue growth. The firms believe that 2017 was a defense year as the company emerged out of headwinds in the generics industry, redefined its pharmaceutical business, and improved its debt pay down capabilities. / Opana ER and Lidoderm are already facing generic competition from Impax and Allergan. Additional competition will further hamper sales.
Several firms are positive on the spin-offs of the Men's and Prostate Health businesses, which will allow Endo to pursue business development deals.
Note: The company’s financial year coincides with the calendar year.
Mar 6, 2018
Long-Term Growth
Endo International, a global specialty healthcare company, is working on diversifying its product portfolio and revenue stream especially through acquisitions. It came into existence following the acquisition of Paladin Labs in February 2014. It has completed several acquisitions.
In October 2015, the company acquired a broad portfolio of branded and generic injectable and established products focused on pain, anti-infectives, cardiovascular and other specialty therapeutics areas from a subsidiary of Aspen Holdings and GlaxoSmithKline for $135.6 million.
In September 2015, the company acquired privately held Par Pharmaceutical Holdings in a transaction valued at $8.14 billion in cash and stock.
In January 2015, Endo announced that it has completed the acquisition of Auxilium Pharmaceuticals for approximately $2.6 billion in cash and stock. The acquisition is expected to be immediately accretive to Endo’s earnings. With the addition of Auxilium Pharma’s products, the company will be able to diversify its business in areas like urology and orthopedics.
These acquisitions should counter the loss of revenues due to generic threat hanging over its product. The acquisitions have also reduced Endo’s dependence on Lidoderm, which has been facing generic competition since September 2013.
To focus better on specialty pharmaceuticals, Endo divested its AMS Men's Health business to Boston Scientific in August 2015. The company also ceased operations of the AMS Women’s Health business, which operates as Astora.
With its focus on the integration and optimization of the Generics business, the company has accelerated restructuring of its Generics product and R&D portfolio, as well as its manufacturing facility network. This restructuring initiative is expected to result in an annualized net run-rate savings of approximately $60 million by 4Q17 and lead to the closure of its Charlotte, NC facility as well as a workforce reduction at the Huntsville, AL facility. It is slated to be complete by 3Q17.
Meanwhile, the company will continue to prioritize resources across key growth products — Xiaflex and Belbuca. Xiaflex is expected to continue witnessing low double-digit growth. The company believes that it hassignificant opportunities to expand its share in the current treatment market as well as the size of the overall markets. In July 2017, Endo announced that the company will be ceasing operations and closing its manufacturing and distribution facilities in Huntsville, Alabama, after completing a comprehensive review of its manufacturing network.
Jan 10, 2018
Target Price/Valuation
Rating DistributionPositive / 26.3%↓
Neutral / 73.7%↑
Negative / 0.0%
Avg. Target Price / $10.57↓
High / $20.00↓
Low / $7.00↓
No. of Analysts with Target price/Total / 15/19
Recent Events
Endo Surpasses Earnings, Revenue Estimates in Q4
Endo reported fourth-quarter 2017 results wherein both earnings and revenues surpassed estimates but declined significantly year-over-year. Earnings from continuing operations were $0.77 which beat the Zacks Consensus Estimate of $0.62. However, earnings declined significantly from $1.77 recorded in the year-ago quarter.
Revenues came in at $769 million in the quarter, surpassing the Zacks Consensus Estimate of $764.81 million. However, the top line was down 38% year over year, primarily due to the loss of marketing exclusivity in the first half of 2017 for the first-to-file products, the generic version of Zetia (ezetimibe tablets) and the generic version of Seroquel XR (quetiapine extended-release (ER) tablets) both of which were launched in fourth-quarter 2016.
Moreover, the product discontinuances in the generic pharmaceuticals segment, pricing pressure from increased competition primarily impacting the generics base business, the divestitures of Litha and Somar, as well as the cessation of Opana ER shipments to customers by Sep 1, 2017 accounted for the decline.
Quarterly Highlights
Endo reports results through three segments — Branded Pharmaceuticals (U.S.), Generic Pharmaceuticals (U.S.) and International Pharmaceuticals.
U.S. Branded Pharmaceuticals sales were down 21% to $228 million, as generic competition is impacting the company’s established products portfolio and cessation of product shipments of Opana ER. However, Xiaflex sales increased 10% year over year reflecting strong volume growth of the product.
In December 2016, Endo terminated its worldwide license and development agreement with BioDelivery Sciences International, Inc. (BDSI) for Belbuca and returned the product.
U.S. Generic Pharmaceuticals recorded sales of $499 million in the quarter, down 43% due to the loss of marketing exclusivity for the first-to-file products ezetimibe tablets and quetiapine ER tablets in the first half of 2017. Product discontinuances and pricing pressure from increased competition impacted the generic base business. Nevertheless, sterile Injectables revenue increased 16% driven primarily by Adrenalin.
The International Pharmaceuticals division garnered sales of $41 million, down from $70 million in the year-ago quarter due to recent divestitures. Endo sold Mexican subsidiary, Somar, to Advent International in October 2017. Endo also sold its South African subsidiary, Litha Healthcare Group in July 2017.
2017 Results
Revenues came in at $3.47 billion, down 14% from 2016 and in line with the Zacks Consensus Estimate. Earnings per share of $3.84 were down from $4.73 in 2016 but surpassed the Zacks Consensus Estimate of $3.67.
2018 Outlook
Endo expects revenues between $2.6 billion and $2.8 billion in 2018, below the Zacks Consensus Estimate of $3.06 billion. The company anticipates earnings from continuing operations in the range of $2.15-$2.55 per share, much below the Zacks Consensus Estimate of $2.86.
Revenues
The company reported revenues of $769 million in 4Q17, down 38% primarily primarily due to the loss of marketing exclusivity in the first half of 2017 for the first-to-file products, the generic version of Zetia (ezetimibe tablets) and the generic version of Seroquel XR (quetiapine extended-release (ER) tablets) both of which were launched in fourth-quarter 2016.
Revenues in 2017 came in at $3.47 billion, down 14% from 2016. The Zacks Digest average revenues for 4Q17 and 2017 were in line with the company’s report.
Outlook:Endo expects revenues between $2.6 billion and $2.8 billion in 2018.
Total Revenue($ in million) / 4Q16A / 2016A / 1Q17A / 2Q17A / 3Q17A / 4Q17A / 2017A / 2018E / 2019E
Digest Average / $884.3 / $4,010.3 / $1,037.6 / $875.7 / $786.9 / $774.8 / $3,475.0 / $786.0 / $884.3
Digest High / $884.4 / $4,010.4 / $1,037.6 / $875.7 / $786.9 / $804.4 / $3,504.6 / $786.0 / $884.4
Digest Low / $884.3 / $4,010.0 / $1,037.6 / $875.7 / $786.9 / $747.8 / $3,448.0 / $786.0 / $884.3
Business Segments
Endohas started reporting results through three segments —Branded Pharmaceuticals (U.S.), Generic Pharmaceuticals (U.S.) and International Pharmaceuticals.
Branded Pharmaceuticals
The segment comprises multiple branded prescription products and focuses on the areas of pain, specialty pharmaceuticals, and urology.Major drugs in the Branded Pharmaceuticals segment include Lidoderm, Opana ER, Percocet, Xiaflex,TestimVoltaren Gel, Supprelin LA, Aveed, Fortesta Geland recently launched Belbuca among others.
Sales: Net sales of the company’s branded products were$228million in 4Q17,as generic competition is impacting the company’s established products portfolio and cessation of product shipments of Opana ER. However, Xiaflex sales increased 10% year over year reflecting strong volume growth of the product. The Zacks Digest average revenues for branded products for 4Q17were in line with the company’s report.
Competitors: Abbott, Allergan, and Jazz Pharmaceuticals among others.
Outlook: Sales of the company’s branded productsare anticipated to falldue to generic competition.
$ in million / 2016A / 2017E / 2018E / 2019E / Est. Growth (16-’19)Branded Sales / $1,166.3 / $1,005.6 / $1,011.8 / $1,024.1 / -
Specific Products
Lidoderm(lidocaine patch 5%)
Indications: For relief of pain associated with PHN
Product Life Cycle Status: Marketed, generics available
Partners: Endo has an agreement with the Japanese company Teikoku Seiyaku Co., Ltd.
Sales:Endo reported Lidoderm net sales of $13.9million in 4Q17, down 34% y/y. The Zacks Digest average Lidoderm sales for 4Q17were in line with the company’s report.
$ in million / 2016A / 2017A / 2018E / 2019E / Est. Growth (16-’19)Lidoderm Patch / $87.6 / $49.4 / $38.9 / $36.0 / -
Opana ER(oxymorphone hydrochloride)
Indication: For the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate.
Product Life Cycle Status: Marketed, generics available
Partners: The company has an exclusive license, development and supply agreement with Grünenthal for the development and commercialization of a new oral crush-resistant formulation of Opana ER in the United States. and Canada.
Patents/Generics: In Aug 2015, the U.S. District Court issued a ruling upholding two patents covering Opana ER. Consequently, the generic version of non-crush resistant Opana ER, currently sold by Allergan, will be removed from the market. In addition, generic versions of the product, which are approved, but not yet marketed, will not be launched in the near term.
Sales:Netsales of Opana ER came in at $1.8 million in 4Q17,down 95% y/y.The Zacks Digest average sales for Opana ER in 4Q17were in line with the company’s report.
In July 2017, Endo announced that after careful consideration and consultation with theFDAfollowing theFDA'sJune 2017withdrawal request, the company has decided to voluntarily remove the drug from the market.In March 2017, theFDA'sAdvisory Committees voted in the ratio of 18:8, with one abstention, that the benefits of reformulated OpanaER no longer outweigh its risks. Alongside, a number of the committee members expressed their preference that OpanaER remain on the market with additional regulatory restrictions.
Additional Formulation: In August 2016, Endo announced that the company has decided to withdraw its supplemental new drug application (sNDA) related to a specific abuse deterrent labeling for Opana ER without prejudice to re-filing, following discussions with the FDA (Aug 11, 2016). However, the company plans to continue to collect and analyze epidemiological data related to Opana ER. The company expects additional data and will discuss with the FDA on the path forward for Opana ER.
$ in million / 2016A / 2017A / 2018E / 2019E / Est. Growth (16-’19)Opana ER / $158.9 / $139.1 / $133.4 / $129.2 / -
Voltaren Gel (diclofenac sodium topical gel 1%)
Indication: Osteoarthritis pain
Product Life Cycle Status: Marketed
Partners:In December 2015, Endo, Novartis and the latter’s generic arm, Sandoz, entered into an agreement to renew Endo’s exclusive U.S. marketing and license rights to commercialize Voltaren Gel through Jun 30, 2023.
Sales:Voltaren Gel sales came in at almost $15.1 millionin 4Q17, down 19% y/y.The decrease was primarily attributed to the launch of a generic version of the drug by Amneal Pharmaceuticals in Mar 2016.The Zacks Digest average sales for Voltaren Gel in4Q17were in line with the company’s report.
$ in million / 2016A / 2017A / 2018E / 2019E / Est. Growth (16-’19)Voltaren Gel / $100.6 / $48.4 / $36.5 / $31.8 / -
Supprelin LA(histrelin acetate)
Indication: Central precocious puberty
Product Life Cycle Status: Marketed
Sales: The company reported 4Q17 Supprelin LA sales of $22.7million, up9% y/y.The Zacks Digest average 4Supprelin LA sales were in line with the company’s report.
$ in million / 2016A / 2017E / 2018E / 2019E / Est. Growth (16-’19)Supprelin LA / $78.6 / $82.9 / $87.7 / $91.8 / -
Percocet(oxycodone and acetaminophen)
Indication: Moderate-to-moderately severe pain
Sales: Percocet sales came in at $32.1 million, down 11%y/y.The Zacks Digest average 4Q17 Percocet sales were in line with the company’s report.
$ in million / 2016A / 2017E / 2018E / 2019E / Est. Growth (16-’19)Percocet / $139.2 / $120.5 / $114.7 / $109.8 / -
Xiaflex/Xiapex (collagenase clostridium histolyticum)
Indication:Dupuytren's contracture and Peyronie's disease
Product Life Cycle Status: Marketed
Partners: Swedish Orphan BiovitrumAB, Actelion, Asahi Kasei (Japan)
Sales: The company reported Xiaflex sales of $61.2 million in 4Q17,up 10%y/y.This reflects continued double-digit demand growth for the product in both the indications. The Zacks Digest average 4Q17 Xiaflex sales were in line with the company’s report.
Additional Indications:The company is progressing with development programs in several indications which includeedematous fibrosclerotic panniculopathy (EFP/commonly known as cellulite), Dupuytren’s nodules, adhesive capsulitis (the company expects to receive written comments from FDA on its proposed adhesive capsulitis program)and canine lipomas.
Data:In November 2016, Endo announced positive results from a phase IIb study on Xiaflex for the treatment of cellulite. Data revealed that subjects who received Xiaflex showed statistically significant levels of improvement in the appearance of cellulite, compared to those in the placebo arm. The drug was welltolerated in actively treated subjects with most adverse events being mild to moderate in severity, and primarily limited to the local injection area.
$ in million / 2016A / 2017E / 2018E / 2019E / Est. Growth (16-’19)Xiaflex / $189.7 / $209.3 / $231.7 / $249.4 / -
Generic Pharmaceuticals
The segment consists of a differentiated product portfolio that includes tablets, capsules, powders, injectables, liquids, nasal sprays, ophthalmics and patches.
The segment includes the legacy Qualitest business along with the acquisitions of Par Pharmaceutical in September 2015, Boca Pharmacal in February 2014 and DAVA Pharma in August 2014.
Sales: Net sales of the company’s generic products came in at $499.0 million in 4Q17, down 43% y/y, attributable to quetiapine ER tablets, the generic version of Seroquel Xr, and ezetimibe tablets, the generic equivalent of Zetia.The Zacks Digest averageGeneric Pharmaceuticals sales for 4Q17werein line with the company’s report.
Competitors: The segment faces competition from other generic drug manufacturers like Teva, Mylan and Impax.
$ in million / 2016A / 2017A / 2018E / 2019E / Est. Growth (16-’19)Generic Revenues / $2,564.6 / $2,318.9 / $2,258.2 / $2,360.5 / -
International Pharmaceuticals
This segment includes a variety of specialty pharmaceutical products for the Canadian, Latin American, South African and world markets, which the company acquired through acquisitions of Paladin (February 2014), Somar (July 2014) and Aspen Holdings (October 2015).
Sales: The segment recorded sales of $41.2 million in 4Q17, down 41% y/y. The Zacks Digest average International Pharmaceuticals sales for 4Q17 were in line with the company’s report. Endo sold Mexican subsidiary, Somar, to Advent International in October 2017. Endo also sold its South African subsidiary, Litha Healthcare Group in July 2017.