Zacks_Analysts' Blog : Neutral View on Endo Pharma - Analyst Blog

We are maintaining our Neutral stance on Endo Pharmaceuticals (ENDP) with a target price of $32.00.

Endo Pharma is a specialty healthcare solutions company that operates in the US and reports results through three segments: Branded Pharmaceuticals, Generics and Devices and Services. Endo Pharma offers more than 175 products in the areas of pain management, urology and oncology.

In August 2011, Endo Pharma reported its second quarter 2011 results. Second quarter adjusted earnings of $1.05 per share were $0.24 above the year ago figure. The year-over-year rise in earnings were due to higher revenues. (Read our full coverage on the earnings report at: Endo Pharma Beats on Sales, Guides Up ).

We note that Endo Pharma is on an acquisition spree to expand its business. In June 2011, the company purchased American Medical Systems, a leading pelvic-health devices provider, for $2.9 billion after having completed three major acquisitions in 2010. We believe that these acquisitions are steps in the right direction and will help to counter the generic threat that Endo Pharma is currently facing.

The company boasts of a strong product portfolio that should drive growth in the coming quarters. In May 2011, the US Food and Drug Administration (FDA) boosted Endo Pharma’s generic portfolio by approving dexamethasone elixir and Orsythia tablets. Dexamethasone elixir is approved for treating patients suffering from endocrine disorders, rheumatic disorders and collagen diseases. Orsythia tablets are approved to prevent pregnancy in women who use oral contraceptives.

In March 2011, the FDA approved oral contraceptive, Emoquette, for the prevention of pregnancy. The approval of the oral contraceptive, the generic version of Johnson & Johnson’s (JNJ) Ortho-Cept, has further strengthened Endo Pharma’s portfolio. Moreover, in March 2011, the product portfolio was boosted by the US launch of Fortesta Gel for treating men (above 18 years of age) with low levels of testosterone (hypogonadism). The entry of Fortesta Gel in the market has widened the treatment options for hypogonadism patients.

However, the lack of near-term catalysts concerns us, especially with the company’s lead product Lidoderm slated to go off patent in 2015. The patent challenge to Lidoderm by Mylan Inc. (MYL) is another test for Endo Pharma. Moreover, other generic companies too have challenged the patents of other drugs in Endo Pharma’s portfolio.

Apart from the generic threat, pipeline setbacks like the failure of pain drug axomadol, and the subsequent termination of the deal for its development, limit the upside potential from current levels. Consequently, we maintain our Neutral recommendation on the stock.