Endo Taking a Beating

The FDA continued to flex its muscles with the rejection of Endo's tamper-resistant form of Opana ER. It was unclear why the FDA rejected the drug as the complete response letter did not call for additional studies to be conducted for the drug to be approved. Endo's management has already undertook discussions with the FDA and expects to file for approval by mid-2011, with an expected six month review cycle.

At first, the rejection of Opana TRF certainly seems like a major blow to my valuation of Endo, with the stock finishing down almost 3.5% at the end of trading day. However, Endo does not actual face generic competition for Opana ER until 2012, which gives the company some cushion while it works to gain approval for Opana TRF. So I do not feel this event causes a great concern to my valuation, but is something I will certainly be keeping track of. Endo has also been experiencing heavy put volume since late 4Q of this past year due to its run-up in price starting in the 3Q of 2010, this may also have been a reason behind the substantial price drop along with the FDA rejection of Opana TRF. I have been expecting a slight correction in the stock, but it should rebound over the next two quarters as the company will start to show results from its acquisitions.

-Dave