What happened
Shares of Endo International (ENDP) dropped 22.8% on Tuesday. The stock had closed at $3.11 on Monday and then opened at $2.83 on Tuesday before hitting a low of $2.40 in early trading. The stock is down more than 36% this year and more than 63% over the past 12 months, with a 52-week low of $1.94 and a 52-week high of $8.74.
So what
The specialty pharmaceutical company operates in four segments: branded pharmaceuticals, sterile injectables, generic pharmaceuticals, and international pharmaceuticals. It reported fourth-quarter earnings after the market closed Monday, and despite mixed financial numbers, the stock slipped considerably on Tuesday. It was a bit of a head-scratcher, until you look more closely at an event that wasn't even mentioned directly in the company's fourth-quarter report.
Image source: Getty Images.
On Monday, a judge in Tennessee issued a default judgement against the company in an opioid-marketing case, chiding the company in saying it intentionally failed to disclose documents from the 13 counties in Tennessee that were plaintiffs in the case. Endo now faces a damages-only trial next year to decide how much the company must pay for mishandling opioids. The same thing happened last spring to Endo in another case in Tennessee, and it ended up paying $35 million in damages.
Investors should have been forewarned. On Feb. 11, Endo said it expected the ruling, albeit saying that it disagreed with the decision. Still, Monday's news put a additional damper on the company's fourth-quarter report.
Now what
The drip-drip-drip of negative news may hurt the stock for a while. Endo company reported annual revenue of $2.99 billion, up 3% over 2020, but in part because of its opioid settlements, it also reported an annual diluted earnings per share (EPS) loss of $2.44, compared with an EPS gain of $1.06 per share in 2020.
On top of that, the company needs to somehow replace the income from its top-selling therapy, Vasostrict, used to boost blood pressure in adults with vasodilatory shock who become hypotensive. The drug, which had $901 million in sales in 2021, will begin to feel economic pressure from a generic version of the drug made by Eagle Pharmaceuticals this year. The next best-selling therapy for Endo was Xiaflex, which brought in $432 million last year, up 37% over 2020. Xiaflex is used to as a nonsurgical therapy for adults with Dupuytren's contracture, a condition in which the connective tissue under the palm thickens and forms knots or cords, contracting one or more fingers.
Investors may think about buying the stock on the dip, but while it has grown revenue for three consecutive years, 2022 is looking to be a difficult time for Endo.
