CEPH Cephalon (MM)

Endo Pharmaceuticals (ENDP) recently announced that it has called off its partnership with German pharmaceutical company Grunenthal GMBH Grunenthal GMBH relating to  pain candidate axomadol. The development, license and supply deal was inked by the companies in February 2009 thus providing Endo Pharma exclusive right to develop and market axomadol in the US and Canada.

The decision followed the disappointing showing of axomadol in a mid-stage trial (n=236). Top-line results from the study, which were announced in June 2011, revealed that Endo Pharma’s candidate failed to meet the predetermined end-points.

The randomized, double blind, two-arm, placebo-controlled study evaluated the candidate in patients suffering from moderate-to-severe chronic low back pain. The 4-week study evaluated axomadol at doses ranging from 100 mg/day to 300 mg/day.

The maintenance phase of the study was 12 weeks. The main goal was a change in the average intensity of pain measured by a numerical rating scale from baseline to the final week of treatment for all patients who were treated with at least one dose of axomadol.

The failure of axomadol and the subsequent termination of the deal have pushed back the pain franchise at Endo Pharma. The pain portfolio is already facing uncertainty due to the generic threat looming over its lead drug Lidoderm. Endo Pharma’s pain products compete with products from players such as Pfizer (PFE) and Cephalon Inc. (CEPH).

To counter the loss of revenues due to the generic threat Endo Pharma has adopted a strategy of growth by acquisition. In June 2011, Endo Pharma acquired American Medical Systems, a leading pelvic-health devices provider, for approximately $2.9 billion. The acquisition enabled Endo Pharma to diversify its business and bolster its urology portfolio.

We note that the purchase of American Medical is the fourth major acquisition by Endo Pharma over the last one year. Endo Pharma completed three major acquisitions in 2010. In December 2010, Endo acquired privately-held generic company Qualitest Pharmaceuticals for $1.2 billion. During 2010, Endo Pharma also bought Penwest Pharmaceuticals Co. and HealthTronics Inc., a provider of urology products and services.

Our Recommendation

We have a Neutral stance on Endo Pharma. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

 
CEPHALON INC (CEPH): Free Stock Analysis Report
 
ENDO PHARMACEUT (ENDP): Free Stock Analysis Report
 
PFIZER INC (PFE): Free Stock Analysis Report
 
Zacks Investment Research