Endo Pharmaceuticals: The Free Fall Continues


There is a war being fought over drug prices. Lawmakers have hit back at price gougers and opioid manufacturers, and Endo  Pharmaceuticals (ENDP) is in the middle of it. A few months ago I thought Endo was at an inflection point and there was a good probability it could turn things around. However, its slide continues.

Revenue Is In Free Fall

Endo’s revenue is in free fall. It is difficult to recommend a stock whose top line is not growing. The decline is broad-based and occurring across several of the company’s product lines. Q4 revenue was off 38% Y/Y. Surprisingly, the largest decline came in Generics which was off 43%. Within Generics, revenue from new launches of $149 million was a disappointment, falling over 65%. The North America Generics market is currently in a state of upheaval. Large clients are demanding price cuts while the FDA is accelerating drug approval which is increasing competition. Mylan (MYL) and Teva (TEVA) have also been hit by declining drug prices in North America. The price erosion in the sector could continue for some time. Generics represents over half of Endo’s revenue.

Revenue from Branded drugs (29% of revenue) fell 21%. This segment includes pain-related drugs such as Opana, Percocet, Voltaren and Lidoderm. The opioid crisis has dominated the national news cycle for several months. According to the Centers for Disease Control and Prevention opioid overdoses spiked 30% from July 2016 to September 2017. Some experts believe the crisis could have been caused by the proliferation of opioid prescriptions. Last year the FDA asked Endo to remove the opioid Opana from the market due to its public health consequences of abuse. That said, Lawmakers’ attempts to tamp down opioid sales have hurt Endo’s Branded drug segment.



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