Endo's Back Pain Drug Disappoints - Analyst Blog

Endo Pharmaceuticals (ENDP) recently suffered a pipeline setback with its candidate axomadol performing disappointingly in a mid-stage trial (n=236). Top line results from the study 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. Endo Pharma in-licensed the US and Canadian development and marketing rights of axomadol from Grunenthal in 2009.

The 4-week study evaluated the candidate 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. Following the disappointing results, Endo Pharma is evaluating options for further development of the candidate.

The failure of axomadol has pushed the pain franchise at Endo Pharma further back. The pain portfolio is already facing uncertainty due to the generic threat hanging 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 the strategy of growth by acquisition. In June 2011, Endo Pharma acquired American Medical Systems, a leading pelvic-health device provider, for approximately $2.9 billion. By acquiring American Medical, Endo Pharma diversified its business and bolstered its urology portfolio.

We note that the purchase of American Medical is the fourth major acquisition for 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.

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