Endo Health Solutions Inc. (ENDP - Analyst Report) reached a resolution of criminal and civil claims with the federal and relevant state authorities and the district of Columbia pertaining to the illegal marketing of the company’s painkiller Lidoderm. Endo will have to shell out payments upto $194 million to settle the dispute. Endo had already set aside the amount to cover the penalties on Lidoderm.
Under the settlement agreement, the company inked a Deferred Prosecution Agreement (DPA) with the United States Department of Justice. The duration of the DPA is up to 2 years and 6 months. In a further bid to settle the dispute, Endo entered into a Corporate Integrity Agreement (CIA) with the United States Department of Health and Human Services, Office of Inspector General. The agreement spans 5 years.
We note that Lidoderm has been facing declining sales of late due to generic competition from companies like Actavis . However, allegations of illegal Lidoderm marketing are quite old. In those days, Lidoderm was a chief contributor to Endo’s total revenues. The resolution of the governmental investigation on the unlawful marketing of Lidoderm by the company is a relief for Endo and helped the stock reach a 52-week high of $78.64 on Feb 21, 2014.
Though pleased with the settlement on Lidoderm, we believe investor focus will remain on Endo’s impending Canadian specialty pharmaceutical company, Paladin Labs Inc. Endo has been looking to combat the declining sales of its key drugs like Lidoderm and Opana ER by making acquisitions/signing deals. Opana ER sales have also declined in recent quarters due to generic competition from companies like Impax Laboratories (IPXL - Analyst Report) .
Endo carries a Zacks Rank #3 (Hold). Auxilium Pharmaceuticals Inc. is a better-ranked stock with a Zacks Rank #1 (Strong Buy).