Endo Pharmaceuticals (NASDAQ:ENDP), a drug company specializing in pain relief, announced first-quarter earnings last Friday, and it was anything but painful for investors. Net income was up to $57.2 million ($0.43 per share), compared with just $20.5 million ($0.15 per share) last year. While Fools know it's important to look at earnings, it's equally important to understand how the bottom line increased so much.

Sales of drugs were up to $254 million compared with $205 million in the first quarter of 2006, which -- while up an impressive 24% -- doesn't account for the almost tripling of earnings. Much of the increased revenues were due to the recognition of $13.8 million in deferred revenue from its newest drug, Opana. So, while the money is in its bank accounts now, the one-time benefit can't be counted on in the future. Growth will need to come from continued sales growth.

Endo's flagship drug, the Lidocaine-containing pain patch Lidoderm, experienced a 23% increase in sales on a 17% growth in prescriptions. The company's increased sales force seems to be helping pain drug Opana; total overall sales were $29.2 million. The sales of Opana more than made up for the loss of the discontinued generic oxycodone.

In other developments, Endo has submitted a supplemental New Drug Application to increase the label indications for migraine treatment Frova to include the prevention of menstrual migraine (MM); this will hopefully be reviewed by the FDA in mid-August. If approved, the increased label indications could boost sales of Frova dramatically, since there are an estimated 12 million women in the U.S. suffering from MM.

In the future, additional sales growth will need to come from drugs in the pipeline, which haven't received FDA approval yet. Endo has two pain management drugs, Rapinyl and the topical Ketoprofen Patch, in Phase 3 trials. Endo expects to file new drug applications for both in the first half of 2008.

A P/E of 30 for a drug company with solid growth of its current products and a pipeline with drugs that have potential for FDA approvals within 24 months might be a little pricey, but Endo certainly deserves a little more due diligence.

For further Foolishness:

An almost 10:1 ratio of bulls to bears earns Endo a four-star rating in Motley Fool CAPS. Have an opinion on Endo? Bring it to CAPS!

Fool contributor Brian Orelli, PhD., doesn't own any stocks mentioned in this article. He blogs about start-up biotech companies at Babybiotechs.com. The Fool has an iron clad disclosure policy.