Endo (ENDP) Beats Q4 Earnings, Announces Divestments

Endo International’s ENDP fourth-quarter 2014 earnings of $1.16 per share beat the Zacks Consensus Estimate of $1.13 and increased 21% from the year-ago period. The year-over-year increase in earnings was primarily driven by higher revenues.

Revenues came in at $800 million in the fourth quarter of 2014, up 37%. Revenues were well ahead of the Zacks Consensus Estimate of $788 million.

The company’s full-year earnings were down 10% from the year-ago period to $4.31 per share, but above the Zacks Consensus Estimate of $4.25. Revenues came in at $2.9 billion, increasing 10% and broadly in line with the Zacks Consensus Estimate.

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

Revenues were hurt by lower sales of Endo’s painkillers, Fortesta Gel (down 72%) and Opana ER (down 13%). Reduced sales of the drugs were primarily responsible for a 3% decline in quarterly Branded Pharmaceutical revenues to $245.8 million.

Endo reported generic product net sales of $337.4 million in the quarter, up 70%. The addition of the erstwhile Boca Pharmacal’s (acquisition completed in Feb 2014) and DAVA Pharmaceuticals’ (acquisition completed in Aug 2014) products led to higher segmental sales. Endo launched an authorized generic version of Lidoderm in May 2014 through its generic unit. The move also led to higher segmental sales.

Revenues from the Devices segment came in at $137.1 million in the reported quarter, up 4% year over year. While sales from the benign prostatic hyperplasia therapy sub-group increased 14%, the other two sub units – women's health and men’s health – registered a sales decline of 4% and an increase of 2%, respectively.

Along with its results, the company announced that it has entered into a definitive agreement with Boston Scientific BSX, which will acquire Endo's men's and prostate health businesses for up to $1.65 billion. The transaction is expected to close in the third quarter of 2015. Endo is also evaluating options for its women's health business.

The newly formed International Pharmaceuticals division contributed $79.7 million to total revenues in the fourth quarter compared with $93.8 million in the preceding quarter.

Endo’s 2015 guidance assumes that results from the Devices segment will be reported as discontinued operations. The company expects earnings per share for 2015 in the range of $4.35 to $4.55. The company expects revenues in the range of $2.90 billion to $3.00 billion. The Zacks Consensus Estimate for 2015 is earnings of $4.87 per share on revenues of approximately $3.3 billion.

We are impressed by Endo’s performance in the fourth quarter. Strong generic revenues contributed to the top-line beat. We are also pleased with Endo divesting its underperforming assets. Meanwhile, the company has completed the acquisition of Auxilium Pharmaceuticals. We expect to see more such deals in the near term.

Endo carries a Zacks Rank #2 (Buy). Other well-ranked stocks in the health care sector include Cytokinetics, Inc CYTK and Alnylam Pharmaceuticals, Inc. ALNY. While Cytokinetics carries a Zacks Rank #1 (Strong Buy), Alnylam is a Zacks Rank #2 stock.