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Endo Health Solutions’ (ENDP - Analyst Report) second quarter 2013 earnings (excluding special items) of $1.42 per share handsomely beat the Zacks Consensus Estimate of $1.15 and increased 12% from the year-ago period. Earnings in the second quarter of 2013 were aided by lower costs.

Revenues came in at $767 million in the second quarter of 2013, down 2%. Revenues easily surpassed the Zacks Consensus Estimate of $724 million.

The Second Quarter in Details

Revenues were hurt by lower sales of Endo Health’s painkiller Opana ER (down 38%) and oncology drugs Vantas (down 29%) and Valstar (down 20%). Reduced sales of the drugs were primarily responsible for a decline of 6% in the quarterly sales of the Endo Pharmaceuticals division (formerly branded pharmaceuticals) to $416 million.

Opana ER sales were hurt by generic competition during the second quarter. Moreover, the year-ago sales of the painkiller were aided by the inventory buildup due to stocking by wholesalers to combat supply related issues.

Sales of ↓Endo Health’s another painkiller Lidoderm climbed 1% to $229.7 million aided by price and volume growth. We note that Lidoderm will be facing generic competition from Actavis, Inc. (ACT - Analyst Report) shortly.

In Aug 2012, the U.S. Food and Drug Administration cleared Actavis’ generic version of Lidoderm. However, Actavis’ agreement with Endo Health prohibits the former from selling the drug prior to Sep 15, 2013.

Sales in Endo Health’s Qualitest (formerly generics) segment climbed 7% year over year to $170.5 million in the second quarter of 2013. Increased demand for the generic drugs contributed to the increase.

Revenues from the American Medical Systems segment (formerly devices) came in at $126 million in the reported quarter, down 2%. Segmental sales were hurt by reduced sales in the U.S. The segment has the following sub-groups: men’s health (up 2%), women’s health (down 15%) and benign prostatic hyperplasia therapy (up 5%). Revenues from the HealthTronics segment (formerly services) came in at $54.4 million, flat year over year.

Adjusted operating expenses declined 19.2% to approximately $219 million. The decline was attributable to Endo Health’s prudent cost-cutting initiatives.

2013 View Updated

Apart from announcing second-quarter 2013 results, Endo Health modified its previously announced guidance for 2013. The company now expects adjusted earnings per share for 2013 in the range of $4.25-$4.55 (old guidance: $4.10–$4.40 per share). Endo Health increased the bottom end of its revenue guidance for 2013. The company now expects to end 2013 with revenues in the range of $2.70–$2.80 billion (old guidance: $2.65-$2.80 billion). The Zacks Consensus Estimate currently hints at earnings of $4.35 per share on revenues of $2.76 billion.

Our Take

At first glance, Endo Health’s second quarter results look impressive with the company surpassing earnings and revenue estimates comfortably. However, revenues declined on a year-over-year basis hurt by lower sales of Opana ER. We believe revenues will remain under pressure due to genericization. However, cost-cutting efforts should help the company achieve its earnings guidance.

Endo Health currently carries a Zacks Rank #3 (Hold). Currently, companies like Biogen Idec (BIIB - Analyst Report) and Gilead Sciences, Inc. (GILD - Analyst Report) look attractive, each with a Zacks Rank #1 (Strong Buy).

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