What we liked about the story prior to De Silva’s entrance was that negative analysts were still hung up on issues with the current business; they’re missing that De Silva will likely give Endo a complete makeover, similar to what was done at Valeant over the past several years. One example is the acquisition of BioVail (which we called a double-reverse merger), which significantly lowered Valeant’s tax rate and was a major driver of that story. These analysts will be forced to play catch up, as their mindsets are stuck in what’s current, not what’s coming.
Through early April as De Silva hits the road to speak with shareholders (beginning in New York), there are three key topics that investors should be paying attention to:
- The state of the existing business
- De Silva’s vision for the company
- How he plans to minimize risk (details below), by either downsizing or eliminating them entirely
The primary concerns for the business revolve around the long-acting opioid Opana ER, for which sales haven’t materialized as fast as expected, and Endo’s implantable vaginal mesh products. Opana ER faces a new generic entrant as of this year, and although Endo contests the tamper-proof comparability of the generic, analysts have been walking down expectations for sales accordingly. In addition, Endo and its subsidiary American Medical Systems (AMS) face lawsuits claiming complications with AMS’ marketed transvaginal mesh products. The space has come under fire since 2008 (J&J (JNJ) faces similar issues) and divesting of the asset may make sense given the issues surrounding a core part of the business. Investors have been waiting to hear details from the new CEO, and clarity on these overhangs should relieve some pressure on the stock. Further, De Silva’s vision for the company will be telling: Will he emulate the vigorous acquisition strategy that he helped cultivate at Valeant? Or will he pursue a sale of the company (many shareholders had been hopeful of a sale prior to De Silva coming in)? We expect further clarity on these issues as De Silva meets with investors country-wide, and we will update readers accordingly as we hear how the meetings are going. De Silva joining Endo is a breath of fresh air regardless, and with clarity in the near-term, now is the time to be involved. See why we believe he can turn ENDP around in our prior coverage.