(By Balachander) Endo Health Solutions Inc. (NASDAQ:ENDP) shares were downgraded to "Sector Perform" from "Outperform" by RBC Capital Markets analyst Shibani Malhotra, who cited continued uncertainty around key growth drivers.
The analyst reduced price target on the stock to $35 from $36.
"While it is possible that ENDP may achieve its (above consensus) long-term guidance, this is driven by what we see as somewhat aggressive assumptions made by management around the growth and sustainability of the Opana ER franchise that could yet be derailed by less cumbersome FDA Bioequivalence guidance for generic crush resistant opioids (expected by YE 2012)," Malhotra wrote.
"Additionally, we did not attain enough new information to increase our comfort in the continued long-term growth of the Qualitest generic business (given much of the recent growth was fueled by unsustainable price increases in products that are going away)," the analyst said.
Malhotra believes additional Lidoderm generics are unlikely until 2015 and the analyst sees potential upside to conservative share assumption.
"We understand that Mylan's (MYL) Lidoderm ANDA uses an acrylic patch and based on comments from Watson during its trial with Endo in March, we believe the FDA will have difficulty approving Mylan's generic."
The analyst said risk to Opana ER franchise remains. "While we do not anticipate generics of the old formulation, Bioequivalence guidelines for the tamper resistant formulation may be less challenging than management currently assumes," Malhotra wrote.
AMS and HealthTronics may be the most attractive strategic assets for Endo, the analyst wrote. "We were particularly intrigued by management's commentary around the use of electronic records to drive patient care, but we need to see strong growth in key AMS segments in the interim."
The stock, which has been trading in the 52-week range of $27.50 to $39.29, dropped 1.68 percent to trade at $30.98 on Friday.