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Mark Vickery

ENDP Beats on Earnings, View Lowered

ENDP

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Endo Health Solutions’ (ENDP - Analyst Report) third quarter 2012 earnings (excluding special items) of $1.28 per share beat the Zacks Consensus Estimate of $1.26 and increased 2% from the year-ago period.  

Revenues declined 1% in the third quarter of 2012 to $750 million. Revenues were well short of the Zacks Consensus Estimate of $788 million.

Revenues were hurt by lower sales of Endo Health’s painkiller Opana ER (down 36%). Reduced sales of the drug was responsible for Endo Pharmaceuticals division (formerly branded pharmaceuticals), which reflected a 2% decline in sales in the third quarter of 2012. Sales of another pain drug Voltaren Gel dropped 2% to $35.5 million in the reported quarter. Sales of Endo Health’s key pain drug Lidoderm increased 15% in the third quarter of 2012 to $238.3 million.

We remind investors that in August 2012 the US Food and Drug Administration (FDA) cleared Watson Pharmaceuticals’ generic version of Lidoderm. However, Watson Pharma’s agreement with Endo Health prohibits the former from selling the drug prior to September 15, 2013.

Endo Health’s Qualitest (formerly generics) segment performed well with sales climbing 12% to $166 million in the third quarter of 2012. The increase was driven by favorable pricing and strong demand for the generic drugs. We remind investors that Qualitest Pharmaceuticals (a generic company) was purchased by Endo Health in 2010.

Revenues from the American Medical Systems segment (formerly devices) came in at $113 million in the reported quarter, down 14%. The segment has the following sub-groups: men’s health, women’s health, and benign prostatic hyperplasia therapy. All the sub-groups performed disappointingly in the third quarter of 2012.

Revenues from the HealthTronics segment (formerly services) came in at $54.5 million, up 1%. HealthTronics was acquired by Endo Health in July 2010.

Adjusted operating expenses declined 10.4% to approximately $242 million. The decline was attributable to Endo Health’s prudent cost management.

2012 Projection Lowered

Apart from disclosing its financial results, Endo Health lowered its guidance for 2012. Endo Health now expects to end 2012 with revenues of $3.05 billion (previous guidance: $3.05-$3.175 billion). Endo Health expects to end 2012 with adjusted earnings of $5.00 per share (previous guidance: $5.00-$5.20 per share). The Zacks Consensus Estimate currently pegs earnings at $5.02 per share on revenues of $3.1 billion.

Our Recommendation

We currently have a Neutral recommendation on Endo Health. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

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