Last week, Endo Health Solutions said two of its top officers were leaving, no explanations offered. Today, we have a possible reason: the wholesale restructuring of the company. A few months after CEO Rajiv De Silva took the reins, Endo says it will lay off 15% of its workforce, cut $325 million in annual costs and "explore strategic options" for its HealthTronics business and early-stage pharma R&D programs.
The overhaul is at least partly aimed at appeasing shareholders. The company's stock slid 24% last year. Fidelity Investments, which owns more than 10% of the company, reportedly has been agitating for a sale, going so far as to scout potential buyers. And that was before the FDA rejected Endo's plea to block generic versions of its Opana ER painkiller, which brought in almost $300 million last year, 10% of the company's total revenue.
De Silva could well be taking a page from Pfizer ($PFE) CEO Ian Read's playbook. Endo's streamlining plans are a smaller echo of Pfizer's ongoing work to shed units that might distract from its drug business--moves that have proven popular with investors. In an SEC filing, Endo says it's planning to veer away from its previous focus on "integrated health solutions" and toward beefing up its core businesses. That means rethinking HealthTronics, a services-focused device unit Endo acquired in 2010; that business brought in $211.6 million last year. And it means focusing on specialty pharma, and zeroing in on R&D programs that promise the most bang for the buck.
It also means layoffs. Shedding 15% of Endo's 4,600-strong workforce will require cutting almost 700 jobs. The company doesn't specify where and how hard the ax will fall but does cite G&A expenses as one target. "Optimizing commercial spend"--i.e., cutting sales and marketing costs--is another goal. According to Endo's annual report, about 1,300 people now work in administration, with another 1,251 in sales and marketing. The R&D and regulatory staff amounts to 423; if the company decides to unload those early-stage research programs, then presumably some jobs will go with them.
In a statement, De Silva said he's been reviewing Endo's operations, with input from the board and other execs, and is now convinced that "through more focused execution and discipline" the company can take a leap forward. "The changes we are announcing today are designed to bring sharper focus to Endo's strategic growth priorities while right-sizing the organization," De Silva said. "We believe these actions will leave Endo with the right cost structure, leadership and execution capabilities to drive sustainable cash flow and earnings growth over time."
The restructuring comes after many months of choppy waters for Endo, with more difficulties ahead. Its CEO retired at the end of 2012, leaving an opening for Fidelity to lobby for a sale. Manufacturing problems have triggered a series of recalls, and the Opana petition at FDA was a bust. And Endo's top seller, Lidoderm, with $950 million in 2012 sales, will face generic competition in September. The company had already predicted a hit to 2013 revenue, with a forecast of $2.8 billion to $2.95 billion. De Silva has now downgraded that to $2.65 billion to $2.8 billion.
- see the Endo release
- read the SEC filing (PDF)
- more from FierceBiotech