Endo makes the case to the FDA that the older Opana formulation poses a severe risk for abuse compared to the new formulation and petitions the agency to require any generic forms of the drug be as equally abuse-resistant as the new Opana ER. Endo discontinued the older drug in June of this year, but analysts fear that competition from generic versions of the old formulation, one of which is set to hit the market in January, will cannibalize sales of the new form, despite a weaker safety profile. Importantly, generics for the old formulation of Opana are not expected to be directly substitutable for written prescriptions of the brand, a key barrier to real generic competition. Any further restrictions on the old formulation by the FDA and the DEA in terms of quotas as a result of the new information could significantly limit the impact from generics as well.
The FDA is not required to consider the CP, but investors hope for some action based on the government’s efforts to curb prescription drug abuse, labeled an epidemic by the Centers for Disease Control in 2011; the FDA could make a decision within the next couple of months. Through an agreement with ENDP, Impax Laboratories (NASDAQ:IPXL) is expected to launch a generic version of the older drug in January unless the FDA deems the old Opana formulation too risky to leave on the market. FDA removing the old formulation from the market would be a big win for ENDP shares. Further evidence that the new Opana ER formulation is countering abuse has been seen in prescription trends, and sales of the new version have been disappointing. The good news is that ENDP shares and analyst estimates already reflect the weak Opana ER trends, and after the abusers are fully out of the prescribing base, the product is likely to start growing again. After falling earlier this year, Endo’s Opana ER prescriptions have begun to stabilize, and the stock remains sensitive to forthcoming prescription data or any news from the FDA pertaining to generic approvals. We remain optimistic that shares of ENDP will appreciate from current levels considering that the company is valued considerably lower than its peers. In fact, based on comparative analysis (See PropThink’s original report), ENDP shares are trading as if future earnings will be cut in half. This kind of value is rare, and we expect ENDP to start climbing as investors realize that risk is largely priced in, and significant upside is on the table if things go right for the company.