Endo Takes $3.5-Billion Write-Down on US Generics Decline

Endo International has reported $3.5-billion asset impairment charges in the fourth-quarter of 2016 relating to pricing pressures and increased competition that are impacting the company’s generics business.

For the 2016 fourth quarter, Endo’s generics base business decreased 23% over the 2015 fourth quarter resulting from continued pricing pressure due to increased competition, particularly among solid oral immediate-release products, the company stated in its earnings report. Overall, in 2016, Endo reported revenues of $4.01 billion, a 23% increase year-over-year and a net loss of $3.2 million compared to a loss of $300,999 in 2015. 

The $3.5-billion charges in the fourth quarter were primarily related to an annual goodwill impairment assessment conducted by Endo, which resulted in non-cash impairment charges of $2.34 billion for the company’s US generics business, $273 million for its Paladin Labs reporting unit in Canada, $33 million for its Grupo Farmaceutico Somar reporting unit in Mexico, and $26 million for its Litha Healthcare Group reporting unit in South Africa. The $3.5-billion charges also include intangible asset impairment charges of $830 million, consisting primarily of non-cash impairment charges of $507 million in Endo’s US generic pharmaceuticals segment and $285 million in the company’s international pharmaceuticals segments resulting from market conditions including price erosion and increased competition.

The $2.34-billion portion of the $3.5-billion charges are related to the US generics business, which was driven by a reduction in expected future cash flows due to a change in pricing expectations. This change in expectations was driven by an expected increase in competition and increased buying power from a generics business customer base that continues to consolidate, which resulted in a reduction of the generics reporting unit’s fair value, according to Endo.

In addition, Endo reported that it is divesting itso Litha Healthcare Group to Acino for approximately $100 million. Endo said that as part of its strategic assessment and comprehensive asset review, the company determined that Litha no longer aligned with its strategy and was not considered a core asset. The divestiture of Litha helps simplify the Endo organization and permits it to better focus on its core generics and specialty branded pharmaceutical businesses. The transaction is expected to close in the second quarter of 2017, subject to customary conditions, including the expiration or termination of any waiting periods under applicable competition laws. The final purchase price will be subject to cash, debt, working capital and other potential contractual adjustments.

In September 2015, Endo bolstered its US generics business with the $8-billion acquisition of Par Pharmaceutical Holdings, a Chestnut Ridge, New York-headquartered generics drug company. Endo’s first quarter 2016 revenues increased 63% to $583 million compared to the first quarter in 2015, primarily attributed to growth from the addition of sales from the Par acquisition. Within its generics business, Endo had intended to launch approximately 30 products from its newly combined pipeline in 2016 and to file approximately 25 to 30 abbreviated new drug applications with the US Food and Drug Administration.

Endo had also announced a restructuring of its generic manufacturing operations in May 2016 that was completed in the fourth quarter of that year and included the divestiture of its Charlotte, North Carolina facility.

Source: Endo International 

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