CEPH Cephalon (MM)

Recently, Endo Pharmaceuticals Holdings Inc. (ENDP) completed the purchase of American Medical Systems, a leading pelvic-health device provider, in an all cash deal worth approximately $2.9 billion.

By acquiring American Medical, Endo Pharma, a US-based specialty healthcare solutions company that develops branded products and specialty generics, diversified its business and bolstered its urology portfolio.

Endo Pharma, while announcing the deal in April 2011, stated that it expected the deal to be accretive to its adjusted earnings with immediate effect following the closure. Endo Pharma had also announced that it expected its 2012 and 2013 adjusted earnings to be boosted by $0.60 and $0.80 per share respectively, as a result of the merger.

We note that the purchase of American Medical is the fourth major acquisition for Endo Pharma over the last one year. Endo Pharma completed three major acquisitions in 2010 to bolster its business.

In December 2010, Endo acquired privately held generic company Qualitest Pharmaceuticals for $1.2 billion. During 2010, Endo Pharma also bought Penwest Pharmaceuticals Co. and HealthTronics Inc., a provider of urology products and services.

We believe that these acquisitions are steps towards countering the loss of revenues due to the generic threat hanging over Endo Pharma especially on its lead pain drug Lidoderm. Endo Pharma’s pain products compete with players such as Pfizer (PFE) and Cephalon Inc. (CEPH).

Apart from announcing the completion of the American Medical deal, Endo Pharma stated that it will come up with detailed financial guidance with the announcement of financial results for the second quarter of 2011 in August.

Our Recommendation

We have a ‘Neutral’ stance on Endo Pharma. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

 
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