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Endo (ENDP) Earnings & Revenues Beat in Q3, Generics Weak

Zacks

Endo International plc ENDP reported third-quarter 2017 results wherein both earnings and revenues surpassed estimates. Earnings from continuing operations were 91 cents which beat the Zacks Consensus Estimate of 70 cents. However, earnings declined 10% from the year-ago quarter.

Revenues came in at $786.9 million in the quarter, surpassing the Zacks Consensus Estimate of $782.9 million. However, the top line was down 11% year over year due to product discontinuances in the generics business in the United States and pricing pressure from increased competition primarily impacting the generics base business. Generic competition impacted the branded established products portfolio along with the ceasing of shipments of Opana ER to customers also dented the top line.


Endo’s stock has tumbled 53.2% compared with the industry industry of 2.7% year to date.

Quarterly Highlights

Endo reports results through three segments — Branded Pharmaceuticals (U.S.), Generic Pharmaceuticals (U.S.) and International Pharmaceuticals.

U.S. Branded Pharmaceuticals sales were down 16% to $234 million, as generic competition is impacting the company’s established products portfolio, the divestitures of Stendra and Belbuca and cessation of product shipments of Opana ER. However, Xiaflex sales increased 10% year over year reflecting strong volume growth of the product. Endo terminated its license with BioDelivery Sciences, Inc. BDSI.

U.S. Generic Pharmaceuticals recorded sales of $497 million in the quarter, down 7% as the decline in the generics base business was partially offset by strong growth in sterile injectables. Sterile injectables revenues increased 28% driven primarily by Adrenalin and Vasostrict. The generics base business decreased 27% due to announced product discontinuances and the continued impact on pricing due to consolidation among trade accounts.

Notably, Endo sold its South African subsidiary, Litha Healthcare Group in July 2017. The company also announced that it will sell its Mexican subsidiary, Somar to Advent International. The transaction will close, in early fourth quarter.

The International Pharmaceuticals division garnered sales of $56 million, down from $71 million in the year-ago quarter. Endo sold Mexican subsidiary, Somar, to Advent International in October 2017.

2017 Outlook

Endo reaffirmed its financial guidance for 2017. Endo expects revenues to be between $3.38 billion and $3.53 billion in 2017. The company anticipates earnings from continuing operations in the range of $3.35-$3.65 per share.

Our Take

Endo reported encouraging results for the third quarter as earnings and revenues both beat expectations. Endo benefited from the impressive contributions of Sterile Injectables and Branded Specialty products business units. However, the decline in generics industry resulted in the base business declining year over year.

The branded pharmaceuticals business was impacted by continued generic competition for established products, product divestitures and ceasing shipments of Opana ER. The business is expected to decline further as the year progresses.

Zacks Rank & Stocks to Consider

Endo currently carries a Zacks Rank #3 (Hold).

Some better-ranked health care stocks in the same space are Ligand Pharmaceuticals Inc. LGND and Exelixis, Inc. EXEL. Both companies sport a Zacks Rank #2 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ligand’s earnings per share estimates have moved up from $3.68 to $3.70 for 2018 over the last 30 days. The company delivered positive earnings surprises in two of the trailing four quarters, with an average beat of 6.19%.

Exelixis’ earnings per share estimates increased from 26 cents to 43 cents for 2017 and increased from 63 cents to 70 cents for 2018 over the last 30 days. The company delivered positive earnings surprise in the trailing four quarters with an average beat of 572.92%. The company’s shares have moved up 16.5% in the last six months.

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