Endo invests big in Qualitest to push generic growth

Endo Health Solutions' ($ENDP) new CEO Rajiv De Silva in June brought the hammer down on company expenses with plans to whack jobs and cut costs in the face of generic competition for its flagship product, painkiller Opana ER. The second quarter earnings report this week clarified why. Endo Tuesday reported a 6% decline in its branded drug sales to $416 million. Sales of Opana ER were off 38%. But even in bleak numbers, there was a bit of upside that De Silva intends to build on. The company will invest $100 million in manufacturing at its Qualitest division to further boost its own growing generics sales.

Endo CEO Rajiv De Silva

During a second-quarter earnings call Tuesday, De Silva said sales at Qualitest were up 7% to $171 million for the quarter and that he expects Qualitest to deliver "low double-digit net sales growth" for the year. "Part of the reason that we are making a substantial CapEx [capital expenditure] investment in Qualitest is, in fact, to improve manufacturing efficiencies," he said, according to a transcript from Seeking Alpha. He said that should bring gross margins in the generics business into the mid 40% range.

So over the next two or three years, the company will invest about $100 million, primarily in its Huntsville, AL, plant, Blaine Davis, Endo senior vice president of corporate affairs, said in a telephone interview. "We are making investments in a number of different areas, expanding our bulk capacity and enhancing the packaging and bottling lines." He said the improvements are expected to both improve efficiencies and increase capacity. They are being undertaken over time so as not to interrupt production at the facility, he said.

Endo is one of the largest producers of controlled substances in the U.S., and the Qualitest product mix is about 45% controlled substances, 10% liquid products and the rest a variety of solid dose generic meds, Davis said.

Whether those enhancements and anticipated growth will translate into more jobs is yet to be seen, Davis continued. "It will take a few years to better understand how it will perform. There are no near-term jobs that will change, but if the business performs well and demand remains strong, with the improvements and plant growth, I would think that would be a positive trend." Qualitest currently has 1,663 employees, and 1,259 of those are in Huntsville.

Of course, any job growth would be welcome given that in June, De Silva said the company would be laying off 15% of its 4,600 employees, cutting nearly 700 jobs. The cuts are being made as De Silva looks to trim $325 million in annual costs.

- here's a transcript of the earnings call

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