Endo International plc – Ordinary Shares (NASDAQ:ENDP) reported first-quarter 2017 financial results, including:

  • Revenues of $1,038 million, an 8 percent increase compared to first-quarter 2016 revenues of $964 million.
  • Reported net loss from continuing operations of $165 million compared to first-quarter 2016 reported net loss from continuing operations of $89 million.
  • Reported diluted loss per share from continuing operations of $0.74 compared to first-quarter 2016 reported diluted loss per share from continuing operations of $0.40.
  • Adjusted net income from continuing operations of $275 million, a 14 percent increase compared to first-quarter 2016 adjusted net income from continuing operations of $241 million.
  • Adjusted diluted EPS from continuing operations of $1.23, a 14 percent increase compared to first-quarter 2016 adjusted diluted EPS from continuing operations of $1.08.
  • Adjusted EBITDA from continuing operations of $478 million, a 21 percent increase compared to first-quarter 2016 adjusted EBITDA of $396 million.

“During Endo’s February 2017 earnings call, we outlined key priorities that we believe will enable us to achieve our Company’s vision. As we noted, we expect this to take time, but our strong first-quarter performance illustrates how our renewed focus on execution is beginning to yield results. The quarter benefited from new Generic product introductions and continued strong growth from our Branded Specialty products business,” said Paul Campanelli, President and CEO of Endo. “As a result, we generated substantial adjusted EBITDA in the quarter that was further enhanced by cost savings from our 2016 and 2017 restructurings and related initiatives.”

CONSOLIDATED RESULTS

Total revenues increased by 8 percent to $1,038 million in first-quarter 2017 compared to the same period in 2016. This increase resulted primarily from the fourth-quarter 2016 introductions of key first-to-file generic products, quetiapine extended-release (ER) tablets and ezetimibe tablets. GAAP net loss from continuing operations in first-quarter 2017 was $165 million compared to GAAP net loss from continuing operations of $89 million during the same period in 2016 primarily attributable to the after-tax impact of goodwill and intangible asset impairment charges during first-quarter 2017 compared to the same period last year. GAAP net loss per share from continuing operations for the first-quarter 2017 was $0.74, compared to GAAP net loss per share from continuing operations of $0.40 in first-quarter 2016.

Adjusted net income from continuing operations in first-quarter 2017 increased by 14 percent to $275 million compared to first-quarter 2016, driven primarily by the contributions of ezetimibe, quetiapine ER, Sterile Injectables, and our Branded Specialty products. Adjusted net income per share from continuing operations for the three months ended March 31, 2017 increased 14 percent to $1.23 compared to first-quarter 2016.

U.S. GENERIC PHARMACEUTICALS

During first-quarter 2017, the U.S. Generic Pharmaceuticals segment submitted four regulatory filings and launched four new products, including ephedrine sulfate injection following the approval of its New Drug Application by the U.S. Food and Drug Administration (FDA).

First-quarter 2017 U.S. Generic Pharmaceuticals results include:

  • Revenues of $722 million, a 24 percent increase compared to first-quarter 2016; this increase was primarily attributable to the fourth-quarter 2016 introductions of quetiapine ER tablets, the generic version of SEROQUEL XR®, and ezetimibe tablets, the generic equivalent of ZETIA®. Par has first-to-file status and associated marketing exclusivity for each product. Revenue growth also benefited from the launch of ephedrine sulfate injection.
  • Sterile Injectables increased 22 percent compared to first-quarter 2016; this increase was driven primarily by VASOSTRICT® and ADRENALIN®.
  • Generics base business decreased 32 percent compared to first-quarter 2016; this decrease primarily resulted from the impact on first-quarter 2017 related to 2016 competitive events and previously announced product discontinuances.

U.S. BRANDED PHARMACEUTICALS

During first-quarter 2017, highly statistically significant data from Endo’s Phase 2b study of XIAFLEX® in patients with cellulite was presented at the Aesthetica Super Symposium (American Society of Plastic Surgeons) and the American Academy of Dermatology Annual Meeting. Phase 3 clinical trials are expected to begin in the second half of 2017.

On March 14, 2017, the FDA’s Advisory Committees voted 18 to eight, with one abstention, that the benefits of reformulated OPANA® ER no longer outweigh its risks, while a number of the Committee members expressed their preference that OPANA® ER remain on the market with additional regulatory restrictions. Following the outcome of the FDA advisory committee meetings, the Company stated its belief that OPANA®ER remains an important clinical choice for appropriate patients and that Endo plans to work collaboratively with the FDA as it completes its product evaluation.

First-quarter 2017 U.S. Branded Pharmaceuticals results include:

  • Revenues of $250 million, a 19 percent decrease compared to first-quarter 2016; this decrease was primarily attributable to generic erosion adversely impacting the Company’s established products portfolio, including VOLTAREN® Gel, FROVA®, OPANA® ER and LIDODERM®, along with the divestiture of STENDRA®.
  • Specialty products increased 11 percent in the first-quarter 2017 versus the same period in 2016, driven by the strong performance from XIAFLEX® and SUPPRELIN® LA. Sales of XIAFLEX®, our flagship Branded product, increased 12 percent compared to first-quarter 2016; this increase was primarily attributable to strong demand growth.

INTERNATIONAL PHARMACEUTICALS

Endo’s previously announced divestiture of its South African subsidiary, Litha Healthcare Group, to Acino Pharma AG is expected to close in the second quarter of 2017, subject to customary conditions, including the expiration or termination of waiting periods under applicable competition laws. In first-quarter 2017, the Company also announced that due diligence had begun on the potential divestiture of its Mexican subsidiary, Somar, which is continuing to progress.

First-quarter 2017 International Pharmaceuticals revenues were $65 million, an 8 percent decrease compared to first-quarter 2016.

2017 FINANCIAL GUIDANCE

For the full twelve months ended December 31, 2017, at current exchange rates, Endo is providing guidance on revenue, GAAP and adjusted diluted income (loss) per share from continuing operations and adjusted EBITDA from continuing operations, along with certain assumptions used in determining these measures. The Company estimates:

  • Total revenues to be between $3.45 billion to $3.60 billion;
  • Reported diluted GAAP loss per share from continuing operations to be between $0.80 and $0.50;
  • Adjusted diluted EPS from continuing operations to be between $3.45 to $3.75; and
  • Adjusted EBITDA from continuing operations to be between $1.50 billion to $1.58 billion.

The Company’s 2017 non-GAAP financial guidance is based on the following assumptions:

  • Adjusted gross margin of approximately 62.5% to 63.5%;
  • Adjusted operating expenses as a percentage of revenues of approximately 22.5% to 23.0%;
  • Adjusted interest expense of approximately $490 million to $500 million;
  • Adjusted effective tax rate of approximately 13.0% to 14.0%; and
  • Adjusted diluted EPS from continuing operations assumes full-year adjusted diluted shares outstanding of approximately 224 million shares.

BALANCE SHEET, LIQUIDITY AND OTHER UPDATES

As of March 31, 2017, the Company had $617.6 million in unrestricted cash; debt of $8.3 billion; net debt of approximately $7.6 billion and a net debt to adjusted EBITDA ratio of 4.4.

First-quarter 2017 cash provided by operating activities was $168 million, compared to $46 million of net cash used by operating activities in the comparable 2016 period. The growth compared to 2016 was primarily attributable to strong operating results and the favorable impact of changes in working capital and other assets and liabilities.

During first-quarter 2017, the Company recorded total combined pre-tax, non-cash impairment charges of $204 million, which primarily consisted of a goodwill impairment charge of $83 million and other intangible asset impairments of $119 million, including the following items:

  • Pursuant to an existing agreement with Novartis AG, Endo’s subsidiary, Paladin Labs Inc., licensed the Canadian rights to commercialize serelaxin, an investigational drug for the treatment of acute heart failure (AHF). On March 22, 2017, Novartis announced that a Phase III study of serelaxin in patients with AHF failed to meet its primary endpoints. As a result, Endo has concluded that its serelaxin in-process research and development intangible asset is fully impaired resulting in a $45 million non-cash impairment charge. As a result of the serelaxin intangible impairment, Endo assessed the recoverability of its Paladin goodwill balance and determined that the estimated fair value of the Paladin reporting unit was below its book value, resulting in a non-cash goodwill impairment charge of $83 million.
  • Endo identified certain market conditions impacting the recoverability of developed technology intangible assets in its U.S. Generic Pharmaceuticals segment. As a result, Endo determined that these intangible assets are impaired. The non-cash impairment charge related to these intangible assets totaled $73 million.

In addition, the Company recorded first-quarter 2017 restructuring cash charges of $15 million related to its restructuring program that primarily impacted its Corporate and Branded pharmaceuticals R&D functions. As announced in January 2017, Endo expects to realize approximately $40 million to $50 million in annual run rate pre-tax cost savings by the fourth quarter of 2017 as a result of these restructuring actions.

In April 2017, Endo refinanced its $3.7 billion existing credit agreement, significantly enhancing the Company’s operational flexibility over the medium to long-term and extending its maturity schedule.

Shares of Endo are rising nearly 7% to $11.64 in pre-market trading Tuesday. ENDP has a 1-year high of $24.93 and a 1-year low of $9.70. The stock’s 50-day moving average is $10.89 and its 200-day moving average is $13.76.

Sentiment on the street is mostly neutral on ENDP stock. Out of 6 analysts who cover the stock, 5 suggest a Hold rating and one recommends to Buy the stock. The 12-month average price target assigned to the stock is $15.5, which represents a potential upside of 43% from where the stock is currently trading.

Endo International Plc operates as a pharmaceutical company. It focuses on developing, manufacturing, and distributing of branded and generic pharmaceutical products. It operates through the following segments U.S. Branded Pharmaceuticals, U.S. Generic pharmaceuticals, Devices, and International Pharmaceuticals.