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Endo Health Eyeing Generic Company, Shares up

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In a bid to boost its Qualitest (formerly generics) portfolio, Endo Health Solutions (ENDP - Free Report) announced its intention to acquire privately-held generics company Boca Pharmacal for $225 million in cash. Endo Health intends to finance the deal, expected to close by year end, with its available cash balance.

While releasing its second quarter 2013 results earlier in the month, Endo Health had stated that it expects adjusted earnings per share for 2013 in the range of $4.25-$4.55. The acquisition, on closure, is expected to boost Endo Health’s 2013 adjusted earnings per share.

The news of the impending acquisition had a positive impact on Endo Health’s stock price. Buoyed by the news, Endo Health hit a 52-week high of $40.79 per share on Aug 28, 2013.

The decision to buy Boca Pharmacal, which focuses on the commercialization and development of products including controlled substances, semisolids, and solutions, is a smart move by Endo Health as it prepares to combat the decline in revenues due to genericization of its key painkillers.

Endo Health’s revenues in the second quarter of 2013 declined on a year-over-year basis due to lower sales of Opana ER. Opana ER sales were hurt by generic competition during the second quarter.

We note that another painkiller at Endo Health, Lidoderm will be facing generic competition from Actavis, Inc. (ACT - Free Report) shortly. In Aug 2012, the U.S. Food and Drug Administration had cleared Actavis’ generic version of Lidoderm. However, Actavis’ agreement with Endo Health prohibits the former from selling the drug prior to Sep 15, 2013.

We note that the Qualitest segment at Endo Health performed well in the second quarter of 2013 with sales climbing 7% to $170.5 million driven by increased demand for generic drugs. The acquisition of Boca Pharmacal, on completion, should boost segmental sales further.

Endo Health carries a Zacks Rank # 3 (Hold). Companies such as Gilead Sciences Inc. (GILD - Free Report) and Actelion Ltd. currently appear to be well placed. Both stocks carry a Zacks Rank #1 (Strong Buy).

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