Endo Business Development On Track For Action
This article was originally published in The Pink Sheet Daily
Executive Summary
CEO Rajiv De Silva says the company expects to complete at least one business development transaction in the “near-term” and perhaps two to three within the next 18 months, during the company’s second quarter sales and earnings call.
A critical piece of Endo International PLC’s turnaround strategy is transforming the company through business development. During the company’s second quarter sales and earnings call Aug. 6, CEO Rajiv De Silva assured investors the company is on track to bring in new business opportunities to help offset the sales hit that will come after generic versions of its top-seller Lidoderm (lidocaine) patch reach the market, expected in September.
The company is aiming to complete at least one transaction in the “near-term” and perhaps more in the next 18 months, De Silva said.
“We remain confident that we can execute the types and number of transactions we talked about,” he said. By that, he said he means two to three transactions in the $250 million to $500 million range in 18 months.
Endo embarked on a new business strategy in June, under the direction of De Silva who joined the company in March from Valeant Pharmaceuticals International Inc., where he served as president and COO (Also see "Endo’s Next Chapter Will Be Led By CEO De Silva" - Pink Sheet, 26 Feb, 2013.). As part of the plan, the company will trim its workforce by 15%, resulting in $325 million in savings by the end of 2014, sell off non-strategic assets, including its discovery platform and urology business HealthTronics, and focus on a small-deal approach to business development (Also see "Endo’s Revamp Signals Reversal From Previous CEO’s Diversification Strategy" - Pink Sheet, 6 Jun, 2013.).
Organic Growth Depends On New Products, Generics
The strategy also calls for organic growth, which will be challenging. Endo’s two top-selling pharmaceutical products are facing generic competition, Lidocaine in September, which generated $947 million in 2012, about one-third of Endo’s sales, and Opana ER (oxymorphone HCI extended-release), which is facing competition from immediate release generics, despite Endo’s efforts to keep the products off the market by citing the potential for abuse (Also see "FDA Crushes Endo’s Hopes, Allows Original Opana Generics To Remain On Market" - Pink Sheet, 10 May, 2013.).
Endo announced an important new hire, the appointment of Don DeGolyer as chief operating officer, pharmaceuticals, overseeing Endo’s branded pharmaceuticals unit and Qualitest.
Branded pharmaceutical revenues were $416 million in the second quarter, down 6% over the prior-year quarter largely due to a 38% decline in sales of Opana ER. The product, which generated sales of $57.9 million, was negatively impacted by generics and a difficult comparison with the prior-year quarter when wholesale inventories were rebuilt due to a supply disruption in 2012.
Endo will have to wring growth out of smaller, newer products like the testosterone gel Fortesta, which launched in 2011 and grew 154% in the first quarter, though it is a significantly smaller product with $17.5 million in sales in the second quarter. The company is also relying on its generics unit Qualitest, which De Silva has highlighted as a central component of the company’s new strategy. The business grew 7% in the second quarter to sales of $171 million and is up 14% year-to-date versus the prior year.
“We believe that strong demand combined with our diverse product offerings will continue to create new business opportunities and deliver strong growth for Qualitest,” De Silva said. “To capture most of that opportunity, we have initiated a multi-year capital expenditure program that we expect to significantly increase our manufacturing capacity and efficiency.”
In addition, the company announced an important new hire July 22, Don DeGolyer who will be chief operating officer, pharmaceuticals, overseeing Endo’s branded pharmaceuticals unit and Qualitest. DeGolyer most recently was president and CEO of Sandoz Inc., Novartis AG’s North American generic drug unit.
Aveed Launch Targeted For 2014
One near-term opportunity could be the long-acting injectable testosterone Aveed (testosterone undecanoate). The drug has been rejected by FDA multiple times due to safety concerns about severe post-injection reactions, but Endo still sees a path to market for the product.
Endo gained Aveed through the acquisition of Indevus in 2009, but the product most recently failed to gain the support of FDA’s Reproductive Health Drugs and Drug Safety and Risk Management advisory committees during a third review in April, though some panelists felt it could be a valuable option for patients (Also see "REMS Can’t Help Endo’s Aveed – Won’t Address Unpredictable Safety Events, FDA Advisors Say" - Pink Sheet, 29 Apr, 2013.).
During Endo’s second quarter call, De Silva said the company is planning to submit a revised REMS proposal for Aveed to FDA by the end of the third quarter and is planning for a potential launch in 2014. Another product, BEMA, a transmucosal version of buprenorphine, is being tested in Phase III trials for chronic pain with results expected in 2014. The company in-licensed the drug in from BioDelivery Sciences International Inc. in 2012 for $30 million upfront [See Deal].
Endo reported consolidated revenues of $766.5 million in the second quarter, a decline of 2% over the year-ago period, while net income was $35 million versus income of $9 million for the 2012 quarter.