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Here's Why Endo International Fell as Much as 18.9% Today

By Maxx Chatsko – Nov 8, 2018 at 12:51PM

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The struggling drug company reported third-quarter 2018 operating results.

What happened

Shares of Endo International (ENDP -4.21%) fell nearly 19% today after the company reported third-quarter 2018 earnings results. The business actually beat Wall Street expectations on both adjusted earnings per share (EPS) and revenue for the quarter, but the year-over-year comparisons were pretty brutal.

Sales slipped 5% and adjusted EPS dropped 22% compared to the third quarter of 2017. That's not what the struggling pharmaceutical company needs if it wants to get back on solid footing following over $1.6 billion in asset impairments since the beginning of 2017. 

As of 12:21 p.m. EST, the stock had settled to a 17.3% loss.

An investor pounding his fist on his desk in anger as a tablet displays a stock chart with steep losses.

Image source: Getty Images.

So what

Endo International hasn't been able to escape a steady stream of losses in the last two years because it has been forced to write off intangible assets related to in-process research and development or marketable products that aren't as valuable in real life as reported on the balance sheet. In the third quarter of 2018, the business had to write off another $142 million in assets, which resulted in an operating loss of $12 million for the period. The company's operating loss for the first nine months of 2018 stands at $319 million, although that's an improvement from the year-ago loss of $656 million.

While write-offs are noncash transactions, they still represent poor decisions from the past that didn't pan out -- and those most certainly had a cash expense associated with them. Case in point: Endo International exited September with $8.2 billion in debt, much of which was pursued to acquire or develop the assets now being written off. Asset impairments don't change that figure. In fact, it makes the net debt calculation even worse. The business ended the third quarter of 2018 with a book value of negative $219 million. 

Aside from completing the process of writing off bad assets, Endo International needs to grow revenue and earnings in order to right the ship. But that's not happening. The business saw cash provided by operations fall 53% in the first nine months of 2018 compared to the same period of last year. 

Making matters worse, today's earnings report follows an update from the pipeline that pushed shares roughly 7% yesterday. Endo International announced successful results from two phase 3 trials investigating collagenase clostridium histolyticum (CCH) as a treatment for cellulite, but response rates of just 7.6% and 5.6% didn't get investors excited about the drug's potential for market success.

Now what

Even with a bad showing in the last two days, Endo International stock has gained over 70% since the beginning of the year to claw its way to a market valuation of $3 billion. But the stock has fallen 76% in the last three years. Considering the poor and deteriorating performance of the business, investors may should likely look elsewhere for buying opportunities.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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