The specialty pharmaceutical company, Endo International PLC (ENDP) which sells branded and generic drugs has been facing numerous woes. The drugmaker has long been tackling litigation suits over opioid sales while the recent events have caused further troubles for it. On top of the wider downfall of equities and Nasdaq being in the bear market, ENDP’s nearly 92% decline in the past 12 months comes from the growing challenges to its path forward. While its latest earnings report did beat the expectations, its guidance, however, was very disappointing. With the continued headwinds from the opioid litigation, the company is now even said to be looking into restructuring its debt.
The drugmaker’s stock currently stands at a year-to-date loss of more than 87% while it fell by over 76% in just the past month. The huge twelve-month decline of nearly 92% has left the stock trading at pennies at the present. As per the day end on May 27, 2022, ENDP shares were valued at a price of $0.52. The stock was able to add 10.64% in the last trading session on Friday after it suffered vastly in the weeks before.
Let’s have a look at the factors contributing to the downfall of ENDP and what might happen in the days ahead.
The Broader Market
2022 has so far been a very challenging year with the geopolitical and economic conditions deteriorating very fast. The world was just recovering from the pandemic’s impacts that Russia invaded Ukraine and brought about a geopolitical turmoil in all of Europe. The war on Ukraine has not just impacted Europe but the rest of the world as well due to huge supply chain constraints and shortages. It also played a big role in the already tough economic situation, further escalating inflation and subsequently, interest rate hikes. To top it all off, China’s zero Covid policy and the reemergence of the viral outbreak there only roughened the situation further. Hence, the broader market conditions have led to a severe downfall of equities, and sharing the same fate is also ENDP.
The Nasdaq is squared in the bear market territory while the S&P 500 had a brush down with it. However, last week did prove a relatively happy one with both the composites adding 2% and 3% respectively. But this slight recovery might just be a trap into the bear market as the situation deteriorates further. With inflation running around a 40-year peak and the Fed hell-bent on curbing it through interest hikes, it is most likely that the markets will fall further.
Opioid Litigation in the U.S.
Negligence from pharmaceutical companies and their attempt to boost sales caused the prescription of opioid pain relievers at a greater rate. Late in the 1990s, drug makers assured the medical community that there was no threat of addiction to opioid pain relievers. Thus, the increased prescription of the drugs led to the widespread misuse of the medications as they were added to the non-prescript forms. Therefore, the U.S. Department of Health and Human Services declared the resulting opioid crisis a public health emergency in 2017.
The opioid epidemic in the U.S. was then further fueled by the pandemic restricting access to treatment programs and life-saving medication. Since the opioid crisis was marked by the government, numerous opioid litigation cases have been filed against many drugmakers. Among these drug makers is also Endo International PLC, which has been dealing with numerous opioid litigations. After dealing with several lawsuits last year, the company is now back on the hook in several opioid trials along with other drugmakers currently.
Increasing Competition from Generic Drugs
The company is also facing increased competition from generic drugs which caused its sterile injectable sales to fall by 22% in the first quarter of 2022. Even ENDP’s vasopressin injection Vasostrict is losing its exclusivity amid the wider number of generics now available at lower costs. The increasing generics even caused a decline in its quarterly sales and it expects a further shrinkage in sales in the ongoing quarter.
However, the company does have a plan in motion for dealing with the rising generics. It recently acquired six injectable pipeline candidates from Nevakar for which the first potential commercial launch is expected in 2025. The company is also initiating a clinical study of Qwo for treating cellulite.
ENDP’s Financial Highlights
The company’s latest earnings report was a beat on both revenue and earnings but the revenues and earnings did decline YOY. ENDP’s Q1 2022 revenue was $652.3 million which went down by 9% YOY. The revenue did surpass the analysts’ expectations of $641 million for the quarter.
Moreover, the adjusted earnings of 66 cents per share also beat the consensus estimate of 44 cents for the quarter. But the earnings fell down from 73 cents per share in the year-ago quarter.
The company’s last year’s $47 million income from continuing operations converted into a loss of $65 million this quarter. In addition to the decrease in revenue, an increase in operating expenses and higher litigation-related costs impacted the figure badly.
Despite the beat quarterly results, a major disappointment came from the company’s Q2 guidance which fell short of expectations. The company is looking ahead to an adjusted net loss of $0.17-$0.15 per share on revenue of $500-$525 million in Q2. Analysts were long for positive adjusted earnings of $0.47 per share on revenue of $656.4 million for the quarter.
Debts Restructuring Talks
Amid the opioid litigations, the company is said to be in talks with its lenders and senior bondholders regarding a debt restructuring. According to Wall Street Journal, ENDP is discussing restructuring over $8 billion of its debt. These negotiations are said to have started after the company faced a sharp drop in its quarterly earnings due to the sales decline and increased litigation-related costs.
Analysts have pegged the company’s total liability for all the litigation cases at a little above $1 billion. The trial deciding the amount payable to settle the charges will be taking place in 2023.
ENDP stock has been severely battered since last year due to the opioid litigation cases against it. Declining sales have further added to its woes while equities have been facing a hard time this year due to the broader market situation. Given its weak guidance and tough situation, analysts have been cutting down its price target and downgrading it as well. The latest downgrade comes from Piper Sandler with a price target of $1.00 from $3.00. The stock has an “Underweight” rating from both Piper Sandler and Barclays. Thus, seemingly the near term is expected to be even more challenging for the company as it tackles the litigation charges, rising competition, and dwindling cash amid the already unstable economic situation.