Xiaflex & Sterile Injectables Drive Endo's (ENDP) Q1 Earnings

Endo International plc (NASDAQ:ENDP) reported first-quarter 2018 results wherein both earnings and revenues surpassed estimates but declined year over year.

Earnings from continuing operations were 67 cents which beat the Zacks Consensus Estimate of 54 cents. However, earnings declined significantly from $1.23 recorded in the year-ago quarter.

Revenues came in at $700.5 million in the quarter, surpassing the Zacks Consensus Estimate of $687 million. However, the top line was down 32% year over year, primarily due to the loss of marketing exclusivity in the first half of 2017 for the first-to-file U.S. Generic Pharmaceuticals products ezetimibe tablets, the generic version of Zetia (ezetimibe tablets) and the generic version of Seroquel XR (quetiapine extended-release, also known as ER, tablets) both of which were launched in fourth-quarter 2016.

Moreover, the product discontinuation in the generic pharmaceuticals segment, pricing pressure from increased competition primarily impacting the generics base business, divestiture of Litha and Somar, as well as the cessation of Opana ER shipments to customers by Sep 1, 2017 accounted for the decline.

As a result of the aforementioned factors, Endo had a choppy ride in 2017. Endo’s stock has tumbled 53.2% over the last 12 months as against the industry’s 2.8% gain.

Quarterly Highlights

Endo now has four reportable business segments: (1) U.S. Generic Pharmaceuticals, (2) U.S. Branded - Specialty & Established Pharmaceuticals, (3) U.S. Branded - Sterile Injectables and (4) International Pharmaceuticals.

U.S. Branded Pharmaceuticals sales were down 20% to $200 million due to cessation of product shipments of Opana ER. Specialty Products revenues increased 7%. However, Xiaflex sales increased 15% year over year reflecting strong volume growth of the product for the indication of both Dupuytren's Contracture and Peyronie's Disease.

During the first quarter, Endo advanced its cellulite treatment development program. Endo initiated two phase III clinical trials of collagenase clostridium histolyticum ("CCH") for the treatment of cellulite. Recruitment for both trials is progressing as expected and top-line results from these trials are expected by the first quarter of 2019.

In December 2016, Endo terminated its worldwide license and development agreement with BioDelivery Sciences International, Inc. (NASDAQ:BDSI) for Belbuca and returned the product.

U.S. Branded - Sterile Injectables sales of $216 million was up 25% driven by strong growth of Adrenalin and Vasostrict. In April, Endo entered into definitive agreements to acquire Somerset Therapeutics, LLC, a specialty pharmaceutical company that develops and markets sterile injectable and ophthalmic drugs for the U.S. marketplace, and the business of its affiliate Wintac Limited, which operates as Somerset Therapeutics' contract developer and manufacturer, for approximately $190 million.

U.S. Generic Pharmaceuticals recorded sales of $249 million in the quarter, down 55% due to the loss of marketing exclusivity for the first-to-file products ezetimibe tablets and quetiapine ER tablets in the first half of 2017. Product discontinuances and pricing pressure from increased competition dampened the generic base business.

The International Pharmaceuticals division garnered sales of $35 million, down from $65 million in the year-ago quarter due to recent divestitures. Endo sold Mexican subsidiary, Somar, to Advent International in October 2017. Endo also sold its South African subsidiary, Litha Healthcare Group in July 2017.

2018 Outlook Reiterated

Endo expects revenues between $2.6 billion and $2.8 billion in 2018. The company anticipates earnings from continuing operations in the range of $2.15-$2.55 per share.

Our Take

Endo’s first-quarter results were driven by growth in Xiaflex and sterile injectables. The company is in the process of redefining its business given the persistent decline in the generic business. The focus now is on sterile injectables and Xiaflex. While the turnaround might take time, the company seems to be on the right track.

Zacks Rank & Stocks to Consider

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

A couple of better-ranked stocks in the health care sector are Ligand Pharmaceuticals (NASDAQ:LGND) and Exelixis, Inc. (NASDAQ:EXEL) Both the stocks sport a Zacks Rank #1 (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 $4.20 to $4.43 for 2018 over the last 60 days.

Exelixis’ earnings per share estimates increased from 59 cents to 86 cents for 2018 over the last seven days after the company reported better-than-expected first-quarter results.

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