Behind Endo’s Financials after 3Q17

Revenue projections

In 3Q17 Endo International (ENDP) reported revenues of ~$787 million, which represents a YoY (year-over-year) fall of 11%. While revenues from products such as Vasostrict and Xiaflex rose in 3Q17, this favorable performance was partly offset by the withdrawal of Opana ER and the divestments of the Litha and Somar businesses.

Behind Endo’s Financials after 3Q17

Wall Street analysts expect Endo (ENDP) to report revenues of ~$3.5 billion for fiscal 2017. This would mean a ~13.8% YoY fall, compared with $4 billion in fiscal 2016, and compares with the company’s own revenue expectation of $3.38 billion–$3.53 billion for fiscal 2017.

Peers Teva (TEVA), Mylan (MYL), and Allergan (AGN) are expected to report revenues of $22.6 billion, $12 billion, and $15.9 billion, respectively, for 2017.

Rationalization measures help to contain costs

For 3Q17, Endo’s cost of revenues was $514 million, representing a YoY fall of 8%. Meanwhile, its gross margin for 3Q17 was 35%, compared with 37% in 3Q16.

This decrease in the cost of revenues was not accompanied by gross margin expansion due to the restructuring charges stemming from the company’s restructuring drive and the competitive landscape in the US generic pharmaceuticals segment. SG&A (selling, general, and administrative) expenses fell 27% YoY to ~$136 million due to cost rationalization measures.

Endo International has chosen to focus on its key products and has divested its non-core assets. In the future, the company’s financial performance highly depends on the performance of its key products, Vasostrict, Adrenalin, and Xiaflex—and on the company’s capability to expand its margins due to rationalization measures.

Notably, Endo makes up ~0.08% of the SPDR S&P MIDCAP 400 ETF’s (MDY) total portfolio holdings.