Risk-Reward Balances for Endo Pharma

We are maintaining our Neutral stance on Endo Pharmaceuticals (ENDP - Analyst Report) with a target price of $39.00.

Endo Pharma is a specialty healthcare solutions company that operates in the US and offers more than 175 products in the areas of pain management, urology and oncology.

Endo Pharma is on an acquisition/deal signing spree to expand its business. In January 2012, Endo Pharma inked a global license and development deal with BioDelivery Sciences regarding the latter’s pain candidate BEMA buprenorphine. The candidate is undergoing late-stage development. Moreover, Endo Pharma has completed four major acquisitions since 2010.

We believe that these acquisitions are steps in the right direction and will help to counter the generic threat that Endo Pharma is currently facing on many of its key products, including lead drug Lidoderm. Patent disputes and entry of generics have the potential to weaken Endo Pharma’s portfolio substantially.

However, Endo Pharma has been constantly launching new products to counter the generic threat hanging over many of its lead products. The new launches are expected to drive growth in the coming quarters.

Furthermore, the shutdown of the manufacturing facility at Novartis (NVS - Snapshot Report) where Endo Pharma’s analgesic drugs, including Opana ER, are manufactured have affected the supply of the products. Even though the shutdown has been termed temporary and the supply constraint short-term, Endo Pharma could be significantly impacted if the shutdown is of a prolonged nature.
Any delay in the resolution of this situation could affect the company's financials. Moreover, pipeline setbacks like the failure of pain drug axomadol, have the potential to limit the upside potential from current levels.

We believe that the risk-reward profile at Endo Pharma is currently balanced and hence retain our Neutral recommendation on the shares.

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