What: The bottom dropped out from under shares of Endo International plc (NASDAQ:ENDP), the specialty pharma famous for selling "uncrushable" opioids and agreeing to enormous legal settlements. After management revealed disturbing revisions of its 2016 full-year estimates, the stock plummeted 41.4% last month, according to data from S&P Global Market Intelligence.
So what: At the end of February, Endo estimated 2016's top line to reach between $4.32 billion and $4.52 billion. On the bottom, it estimated earnings of between $2.25 and $2.60 per share.
When the company reported first-quarter results on May 5, it revised its top-line estimate down a little more than 10% to between $3.87 billion and $4.03 billion. In all, not so bad.
However, the revision to 2016's bottom-line estimate was so harsh, even a handful of Endo's "crush-resistant" Opana ER pills couldn't dull the pain. In just over three months, its earnings outlook for the year sank over 80% to between $0.25 and $0.55 per share.
The Dublin-domiciled company has been incredibly good at losing money for years.
The suggestion in February that this year it would finally report an impressive profit was far more surprising than the recent revision, despite the upswing in revenue.
Now what: On May 5, the company also announced that the president of its U.S.-branded pharmaceuticals segment has decided to step down once the company can find a suitable replacement, and it appointed two new board members.
Hopefully some fresh blood can help the company return to profitability, but the road ahead will probably be paved with more non-cash charges. In the first quarter, Endo incurred $127.2 million in pre-tax charges and expects to take on another $200 million through next September related to restructuring of its generic segment.
Although first-quarter revenues grew 34.9% to $963.5 million, Endo's cost of revenue rose 79% to $688.7 million over Q1 2015.
While Endo's shrinking gross margin is concerning, the amount of goodwill and other intangible assets it picked up last year is terrifying. They rose from from $5.2 billion at the end 2014 to $15.1 billion at the end of last year. These are basically assets without any physical form, and they rarely increase in value. In the first quarter alone they fell over $300 million to $14.8 billion.
With intangibles on the decline, and the low margins in its built-up and then cut-down generic segment, I'll be surprised if Endo reports any profit this year.