Endo International Jumps on Patent Approval, Still Has Work to Do

 | Jun 28, 2016 | 3:36 PM EDT
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It's been a wild day on top of an already wild year for Endo International (ENDP).

The Dublin-based specialty pharmaceuticals company announced midday Tuesday that it has been issued a patent for Vasostrict, an injectable used to increase blood pressure in patients suffering from post-cardiotomy or septic shock. Vasostrict represents roughly $300 million of revenue for Endo and the patent, which expires in 2035, lessens the risks of competitor drugs. Shares of Endo shot up as high as 19% to $16 on the news.

The announcement came less than a day after Reuters reported, citing sources close to that matter, that Endo was exploring asset sales to reduce its $8 billion debt load. The report warned that talks were in early stages and that it is possible that no transactions would occur. Representatives for Endo International did not immediately respond to Real Money's requests to comment.

While news on Vasostrict is clearly a boon for Endo, talk of potential asset sales reflect the broader troubles Endo -- and the specialty pharmaceuticals space -- have faced. Shares of Endo are down 83% over the last 12 months, not accounting for Tuesday's intraday movement.

"We think that this news negatively impacts the short thesis for this stock to some extent, though we do not contest the overall weakness of the business," Irina Koffler of Mizuho Securities USA wrote in a note Tuesday. Mizuho has a Neutral rating on Endo and $16 price target.

Endo cut its guidance in May this year, which sent shares plummeting 40% in a single day. Pricing pressure on generics and delays in regulatory approvals were cited as reasons for the cut. The company has been hampered by its $8.05 billion acquisition of Par Pharmaceutical in September, which was financed by a mix of cash, debt and a $2.3 billion equity offering. Tackling its debt load amid broader worries has been viewed as imperative.

"When your stock goes from the $80s – pushing close to the $90s at one point – and now you're down under $15 a share, obviously you're going to have a lot of investors not thrilled with stock performance and they're going to be looking for opportunities to create value and asset sales could be one of those," Kevin Kedra of Gabelli & Co. told Real Money Tuesday. Gabelli & Co. has a Buy rating on Endo.

Kedra added that the most likely candidates for sale would be non-core and legacy assets but the sales would likely not make a "meaningful dent" in Endo's debt due to what he called a "buyers' market."

In a report released earlier this month, Koffler examined the most likely sales for Endo, noting that an outright sale of the company was unlikely.

"We think the company is more likely to remain standalone for the foreseeable future, though we would expect TPG to actively oversee its strategic direction and divestitures," Koffler wrote. TPG Capital, which has a nearly 10% stake in Endo, declined to comment on potential asset sales.

Among the most assets Endo would be most likely to sell, Koffler suggested Xiaflex, a drug used to treat hand contractions and Supprelin LA, which is used to treat early puberty in young girls. "After these divestitures we think the business would still remain quite levered (high 3x range, but this picture would represent a significant improvement and could transform Endo more rapidly than we think is possible for Valeant)," Koffler wrote. Mizuho estimates that Endo is currently 5x levered.

Despite Tuesday's good news on Vasostrict, Endo has a long way to go to turn itself around.

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