On Wednesday Endo Pharmaceuticals (NASDAQ:ENDP) announced its second-quarter financial results. As worries recede about near-term generic competition for lead drug Lidoderm, expectations for Endo have grown.

In the second quarter Endo did a good job of meeting those expectations as sales were up 13% versus the year-ago period and gross margins improved to 79%. Operating profits fell, though, due to sharply higher SG&A expenses in conjunction with its huge expansion of its sales force continuing from earlier in the year. Diluted earnings per share were $0.45 in the quarter.

The quarter was mixed for Endo's products in its drug pipeline. An upcoming label expansion decision for potential menstrual migraine prophylaxis treatment Frova was pushed back three months to Aug. 19, and the pain patch ketoprofen failed in phase 3 testing (although there are more ongoing studies of the drug).

On the conference call Endo reiterated that it was still in discussions about potential company or drug-specific acquisitions and would be hoarding its over $800 million in cash and investments for such use. Earlier in the week one shareholder group publicly made its preference known that Endo should find a different use for its cash.

Endo's top two pain products, Lidoderm and the Opana franchise, are selling well, and 2007 sales guidance was raised for both products earlier in the week. The only worries about Endo are the possible genericization of Lidoderm in the future, but the drugmaker has made fairly compelling arguments as to why this won't happen until the compound's patents run out.

Other than that, Endo is trading at 19 times the midpoint of adjusted 2007 earnings, is expected to grow its top line at least 15% this year, and will hopefully be able to improve its operating margins next year following the completion of the sales force expansion. There's not much more an investor could ask for operationally.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.