Endo International’s (ENDP) second quarter 2014 earnings (excluding special items) of $1.06 per share beat the Zacks Consensus Estimate by 16 cents but decreased 25% from the year-ago period. The year-over-year decline in earnings was primarily due to a higher share count. Revenues came in at $718.7 million in the second quarter of 2014, up 1%. Revenues were well ahead of the Zacks Consensus Estimate of $644 million.
Following the completion of the acquisition of Paladin Labs earlier in the year, the company has started reporting results through four segments – Branded Pharmaceuticals (U.S.), Generic Pharmaceuticals (U.S.), Devices and International Pharmaceuticals – from the first quarter of 2014.
The Second Quarter in Details
Revenues were hurt by lower sales of Endo’s painkillers, Lidoderm (down 81%), Opana ER (down 7%) and Fortesta Gel (hypogonadism: down 31%). Reduced sales of the drugs were primarily responsible for a 40% decline in quarterly Branded Pharmaceutical revenues to $248.5 million. Lidoderm sales were hurt by generic competition during the second quarter. Actavis (ACT) had launched its generic version of the painkiller in Sep 2013.
Endo reported generic product net sales of $272.2 million in the quarter, up 60%. The addition of the products of the erstwhile Boca Pharmacal (acquisition completed in Feb 2014) contributed to higher segmental sales. Endo launched an authorized generic version of Lidoderm in May 2014 through its generic unit. The move also led to the increase in segmental sales.
In Jun 2014, Endo inked a deal to buy privately held DAVA Pharmaceuticals for a cash consideration of approximately $575 million to strengthen its generics portfolio further. The deal is expected to close by Sep 30, 2014.
Revenues from the Devices segment came in at $125.8 million in the reported quarter, flat year over year. While sales from the men's health sub-group improved 3%, the other two sub units – women's health (down 5%) and benign prostatic hyperplasia therapy (down 3%) – performed disappointingly.
The newly formed International Pharmaceuticals division contributed $72 million to total revenues in the second quarter compared with $24.8 million in the preceding quarter. In a bid to expand further, Endo acquired Mexico-based private company Grupo Farmaceutico Somar in Jul 2014.
2014 Outlook Raised
Following the release of better-than-expected second quarter results, Endo increased its guidance for 2014. The company now expects adjusted earnings per share for 2014 in the range of $3.80 to $4.00 (old guidance: $3.60–$3.85). The company now expects revenues in the range of $2.72 billion to $2.80 billion (old guidance: $2.55 billion to $2.64 billion). The Zacks Consensus Estimate for 2014 is pegged at earnings of $3.75 per share on revenues of approximately $2.6 billion.
Our Take
We are impressed by Endo’s performance in the second quarter. Strong generic revenues contributed to the top-line beat. We are impressed by Endo’s decision to buy DAVA. Following the completion of the deal, Endo’s Generics business will be strengthened further. The decision to acquire DAVA is also aimed at combating dwindling sales from generic competition of key products. We expect Endo to achieve the increased revenue guidance driven by its strong product portfolio.
Endo carries a Zacks Rank #2 (Buy). Better-ranked stocks in the health care sector include Actelion (ALIOF) and Celgene Corp. (CELG). Both stocks sport a Zacks Rank #1 (Strong Buy).
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