Endo Health Solutions (ENDP) will soon face declining revenues from generic competition against its two largest margin drugs, Opana ER and Lidoderm, says David Amsellem, Managing Director and Senior Research Analyst at Piper Jaffray & Co. He says Lidoderm’s generic competition is expected to hit the market in September, and Opana ER’s will see additional competition in 2013 and into 2014.
“You have these two products that constitute the company’s highest margin business, and there’s some potential that over the next two to three years that that revenue will evaporate, and I don’t mean completely evaporate, but you’ll see major declines. And so, what does that mean? It means that you’re going to see some major decline in cash flows over the next couple of years,” Amsellem said.
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Although ENDP hired Rajiv De Silva as its new President and CEO, Amsellem says righting the course of the company will take time. He adds that the balance sheet currently doesn’t allow the company to engage in M&A to broaden its pipeline, and he says the device business doesn’t seem to fit the rest of the company and wonders whether that part of the company is salable.
“The bottom line is that it’s going to take quite some time to turn this company around, also bearing in mind that they don’t have balance sheet flexibility right now, given that you’re looking at over $3 billion in debt and you’ve got a term loan that comes due in, I believe it’s 2016 or 2015,” Amsellem said. “I would expect the recent hire, and I think it’s a good hire — but it is an uphill climb, there’s no question about it, and I think that given all the dynamics, I think there’s a good chance it’s likely to get worse before it gets better.”
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