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Endo Health Beats on Earnings, Eyes Paladin

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Endo Health Solutions’ (ENDP - Free Report) third quarter 2013 earnings (excluding special items) of $1.34 per share handsomely beat the Zacks Consensus Estimate of $1.12 and increased 5% from the year-ago period. Earnings in the third quarter of 2013 were aided by lower costs due to Endo Health’s prudent cost cutting initiatives.

Revenues came in at $715 million in the third quarter of 2013, down 5%. Revenues easily surpassed the Zacks Consensus Estimate of $693 million.

Quarterly Highlights

Revenues were hurt by lower sales of Endo Health’s painkillers Lidoderm (down 37%), Opana ER (down 4%) and oncology drugs Vantas (down 26%) and Valstar (down 28%). Reduced sales of the drugs were primarily responsible for a 12% decline in the quarterly sales of the Endo Pharmaceuticals division (formerly branded pharmaceuticals) to $366.1 million.

Lidoderm sales were hurt by generic competition during the third quarter. Actavis, Inc (ACT - Free Report) launched its generic version of the painkiller in Sep 2013. Sales in Endo Health’s Qualitest (formerly generics) segment climbed 11% year over year to $183.9 million in the third quarter of 2013. Increased demand for the generic drugs contributed to the increase. In a bid to boost its generics portfolio, Endo Health 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.

Revenues from the American Medical Systems segment (formerly devices) came in at $111 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 6%), women’s health (down 18%) and benign prostatic hyperplasia therapy (flat year over year). Revenues from the HealthTronics segment (formerly services) came in at $53.6 million, down 2%. Endo Health intends to sell off its struggling HealthTronics unit and is in discussions regarding the same.

2013 View

Apart from announcing results for the third quarter of 2013, Endo Health increased its previously announced earnings guidance for 2013. The company now expects adjusted earnings per share for 2013 in the range of $4.60-$4.75 (old guidance: $4.25–$4.55 per share). Endo Health upped the bottom end of its revenue guidance for 2013. The company now expects to end 2013 with revenues in the range of $2.75–$2.80 billion (old guidance: $2.70-$2.80 billion). The Zacks Consensus Estimate for 2013 hints at earnings of $4.57 per share on revenues of $2.79 billion. The company stated that it is on track to meet its objective of reducing operating costs by $150 million in 2013 over the 2012 figure.

Endo Health Eyes Paladin

Apart from its earnings results, Endo Health announced that it will acquire Canadian Specialty Pharmaceutical Company Paladin Labs Inc. for approximately $1.6 billion in a cash and stock deal. The move is in line with Endo Health’s efforts to expand and counter the declining revenues due to generic competition. The transaction, cleared by the board of directors of both companies, is expected to close in the first half of 2014. The deal, which will strengthen Endo Health’s portfolio substantially, is expected to boost Endo Health’s 2014 adjusted earnings per share.

The acquisition, following closure, is expected to result in annual savings of at least $75 million. Shareholders at Endo Health will own 77.5% of the merged entity and Paladin Labs shareholders will hold the balance. Endo Health’s current management will head the operations of the merged entity.

Endo Health carries a Zacks Rank #3 (Hold). Stocks such as Actelion Ltd. and Isis Pharmaceuticals Inc. appear to be more attractive with a Zacks Rank #1 (Strong Buy).

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