Endo Pharmaceuticals (ENDP) Q2 Results

Endo Pharmaceuticals (ENDP) appreciated 6.90% after releasing strong second quarter results. The company reported impressive top-line revenues of $608 million, an increase of 53% over Q2 2010. Net income grew by 6% from $51 million to $55 million, and adjusted EPS grew by $0.24 to $1.05, slightly missing analyst expectations of $1.06.

Endo Pharmaceuticals saw substantial sales growth in many different areas, including branded drugs, generic drugs, and medical devices. The organic growth in branded drug sales can primarily be attributed to their pain medication segment, with sales of Opana ER climbing 64%. Generic drug sales also grew substantially, as the company began to benefit from the acquisition of Qualitest Pharmaceuticals. Generic drug sales soared 381%, and now make up approximately 22% of the firm's total revenues, compared to 7% during the same time last year. Lastly, the firm saw substantial growth in the devices segment, as the acquisition of HealthTronics began taking effect. The firm saw a $76 million jump in device revenues due to the acquisition, and which now represent 13% of the total revenues. Although a large portion of sales revenues were driven by acquisitions, these results are positive as the firm continues to see organic growth in its pain franchise of Opana ER and Voltaren Gel. Management has revised sales estimates upwards, as it expects to capitalize on the acquisition of American Medical, the fourth major acquisition for the company.

During the second quarter, Endo Pharmaceuticals saw an increase in expenses due to cost of goods sold and selling, general, and administrative costs. Both cost of goods sold and S,G, & A expenses increased due to the major acquisitions and increased product sales. Gross margins decreased from 73% to 61%, as the newly acquired product line-ups offer lower profit margins than the firm's legacy products.

I view these results as strong, and am confident in the position going forward. As of the 8/10/2011 close, the company is trading at $32.92, which is $1.84 below the stop-loss. The position has dropped 11.62% since the beginning of August, primarily on macroeconomic factors and market volatility, rather than company fundamentals. Despite this drop, I am confident in the firms potential going forward, and its ability to grow organically, as well as capitalize on acquisition synergies.

-Ryan