Endo International’s (ENDP) third-quarter 2014 earnings of $1.15 per share beat the Zacks Consensus Estimate of 99 cents but decreased 14% from the year-ago period. The year-over-year decline in earnings was primarily due to generic competition for branded Lidoderm. Revenues came in at $763.9 million in the third quarter of 2014, up 16%. Revenues were well ahead of the Zacks Consensus Estimate of $718 million.
Following the completion of the Paladin Labs acquisition earlier this 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 Third Quarter in Details
Revenues were hurt by lower sales of Endo’s painkillers, Lidoderm (down 72%) and Opana ER (down 17%). Reduced sales of the drugs were primarily responsible for a 34% decline in quarterly Branded Pharmaceutical revenues to $240.9 million. Lidoderm sales were hurt by generic competition.
Endo reported generic product net sales of $319.4 million in the quarter, up 74%. The addition of the erstwhile Boca Pharmacal’s (acquisition completed in Feb 2014) and DAVA Pharmaceuticals’ (acquisition completed in Aug 2014) products 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 higher segmental sales.
Revenues from the Devices segment came in at $109.8 million in the reported quarter, down 1% year over year. While sales from the prostatic hyperplasia therapy sub-group increased 8%, the other two sub units – women's health (down 10%) and men’s health (down 2%) – performed disappointingly.
The newly formed International Pharmaceuticals division contributed $93.8 million to total revenues in the third quarter compared with $72 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 third-quarter results, Endo increased its guidance for 2014. The company now expects earnings per share for 2014 in the range of $4.10 to $4.25 (old guidance: $4.00–$4.20). The company now expects revenues in the range of $2.80 billion to $2.88 billion (old guidance: $2.78 billion to $2.86 billion). The Zacks Consensus Estimate for 2014 is earnings of $4.10 per share on revenues of approximately $2.8 billion.
Our Take
We are impressed by Endo’s performance in the third quarter. Strong generic revenues contributed to the top-line beat. We are also impressed by Endo increasing its guidance further. However, we remain concerned about rebates on generic products which could impact the company’s generic business.
We remind investors that Endo is set to acquire Auxilium Pharmaceuticals, Inc. (AUXL). The deal is expected to boost the company’s sales and earnings growth from 2015 (read more: Endo to Buy Auxilium for $2.6B, Diversify Portfolio).
Endo carries a Zacks Rank #2 (Buy). Other well-ranked stocks in the health care sector are Allergan (AGN) and AbbVie (ABBV). Both carry the same rank as Endo.
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