NEW YORK, Aug. 10, 2022 /PRNewswire/ — Institutional investors managing in excess of $20 billion have organized a group (the “Group”) of holders of unsecured notes (the “Unsecured Notes”) issued by certain subsidiaries of Endo International plc (“Endo” or the “Company”). As set forth in its June 27, 2022 press release, the Group is prepared to engage constructively with the Company on solutions for the benefit of all of its stakeholders, including its equity holders, creditors, employees and litigation claimants.
The Group emphasizes that a near-term bankruptcy filing is entirely unnecessary. Endo’s recently announced second quarter results underscore this point while calling into question the Company’s forecasting abilities. Indeed, the latest results demonstrate that the Company materially under-projected performance notwithstanding that, at the time of its guidance, the second quarter was nearly 40% complete. The table below summarizes the extent of Endo’s outperformance.
|
Q2 ’22 Guidance1 |
Q2 ’22 Actual2 |
% Outperformance3 |
|
|
Revenue |
$500 mm – $525 mm |
$569 mm |
11 % |
|
Adj. EBITDA4 |
$110 mm – $125 mm |
$160 mm |
36 % |
|
Adj. EBITDA ex-IPRD5 |
$145 mm – $160 mm |
$225 mm |
48 % |
The Company’s outperformance was not merely deep but also broad, as the Company under-forecast almost every element of its business. Its adjusted cost of goods sold and operating expenses were better than projected, and as highlighted below, each of its four segments generated more revenue than Endo had forecast.
|
Q2 ’22 vs. Q1 ’22 % Revenue Change |
Q2′ 22 Guidance6 |
Q2′ 22 Actual |
|
Branded Pharmaceuticals |
In-line to low single digit growth |
7 % |
|
Sterile Injectables |
Low to mid 50’s decline |
-49 % |
|
Generic Pharmaceuticals |
Low to high single digit decline |
9 % |
|
International Pharmaceuticals |
Mid single digit decline |
10 % |
|
Total Enterprise |
Low to mid 20’s decline |
-13 % |
As a result, Endo ended up producing nearly 50% more adjusted EBITDA ex-IPRD than it had projected. On an annualized basis, the miss translates into an approximately $300 million understatement. This is a substantial sum for Endo, which has a track record of handily beating guidance. In fact, the Company has exceeded the midpoint of its adjusted EBITDA guidance in each of the past four years, and it outperformed its adjusted EBITDA guidance in the first quarter of 2022 by nearly 25% even though it delivered this forecast with the quarter nearly two-thirds complete.7
Endo’s consistent performance substantially in excess of its own projections necessarily calls into question the Company’s forecasting abilities. In the Group’s view, this raises serious further questions about the Company’s choice to file for bankruptcy and its ability to consummate a plan of reorganization if it does file.
If the Company’s second quarter performance is indicative of the go-forward business, the Group—which has already expressed substantial doubt about the need for a bankruptcy—questions how a filing can even be remotely justified. Moreover, the Group has reason to believe that Endo’s second quarter performance may understate the earnings of the business. While substantially higher than Endo’s forecast, the second quarter’s adjusted EBITDA ex-IPRD of $225 million, or $900 million on an annualized basis, does not incorporate, among other things, (i) potential upside from Vasostrict from the Company’s ongoing patent litigation and/or underlying product performance,8 (ii) potential growth of Qwo9 and (iii) recently announced cost cutting initiatives that the Company itself expects to deliver between $140 million to $160 million of annualized savings.10
As an additional matter, to the extent that the Company is using potential opioid liabilities as a reason for a bankruptcy filing, the Group believes that recent developments seriously undermine that justification as well. For one, as disclosed in its recent 10-Q, Endo has entered into a number of manageable out-of-court settlements in recent months.11 Moreover, Endo’s peer, Teva Pharmaceutical Industries Ltd., has just demonstrated that a comprehensive opioid settlement can be consummated outside of bankruptcy.12
In light of all of the above, the Group is increasingly perplexed and frustrated by the actions of the Company and its board of directors. Fortunately, it is not too late for the Company and its board to choose a different path and act in accordance with applicable fiduciary duties. The Group hopes that they do so, and remains willing to engage with the Company on potential alternatives.
As previously noted, in support of its efforts, the Group has retained White & Case LLP and GLC Advisors & Co., LLC as legal and financial advisor, respectively. Holders of Unsecured Notes who wish to learn more about the Group and its objectives are encouraged to reach out to projectcarrot@whitecase.com and/or carrot-glc@glca.com.
This press release may contain certain forward-looking statements, including statements that include the word “expects.” Such statements reflect current expectations and are subject to risks and uncertainties. The statements are based on assumptions, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from those projected, expressed or implied by these forward-looking statements. These forward-looking statements speak only as of the date they are made and we do not undertake any obligation to update these statements.
1 Endo International plc, Endo Reports First-Quarter 2022 Financial Results (May 5, 2022).
2 Endo International plc, Endo Reports Second-Quarter 2022 Financial Results (Aug. 9, 2022).
3 Outperformance is relative to the midpoint of guidance.
4 Effective January 1, 2022, Endo’s adjusted EBITDA includes acquired in-process research and development charges, which were previously excluded under the Company’s non-GAAP accounting policy.
5 Adjusted EBITDA excluding in-process research and development adds back in-process research and development charges. The adjusted EBITDA guidance included $35 million of such charges whereas actual results included $65 million. The initial $35 million is attributable to Endo’s acquisition of six development-stage ready-to-use injectable product candidates from Nevakar Injectables, Inc., and the incremental $30 million is on account of payments to Taiwan Liposome Company, Ltd. to commercialize TLC599. See Endo International plc, Quarterly Report (Form 10-Q) (Aug. 9, 2022).
6 Endo International plc, Q1 2022 Earnings Report (May 5, 2022).
7 Specifically, for 2018, Endo initially guided to between $1,200 million and $1,300 million of adjusted EBITDA and delivered $1,357 million; for 2019, it initially guided to between $1,240 million and $1,340 million of adjusted EBITDA and delivered $1,309 million; for 2020, it initially guided to between $1,220 million and $1,320 million of adjusted EBITDA and delivered $1,396 million; and for 2021, it initially guided to between $1,120 million and $1,280 million of adjusted EBITDA and delivered $1,481 million. Further, for the first quarter of 2022, it guided to between $240 million and $260 million of adjusted EBITDA and delivered $311 million. For applicable guidance, see Endo International plc, Q4 2017 Earnings Report (Feb. 27, 2018); Endo International plc, Q4 2018 Earnings Report (Feb. 28, 2019); Endo International plc, Q4 and FY 2019 Earnings Report (Feb. 26, 2020); Endo International plc, Q4 and FY 2020 Earnings Report (Feb. 25, 2021); Endo International plc, Q4 and FY 2021 Earnings Report (Feb. 28, 2022). For actual results, see Endo International plc, Endo Reports Fourth-Quarter and Full Year 2018 Financial Results (Feb. 28, 2019); Endo International plc, Endo Reports Fourth-Quarter and Full-Year 2019 Financial Results (Feb. 26, 2020); Endo International, plc, Endo Reports Fourth-Quarter and Full-Year 2020 Financial Results and Introduces 2021 Financial Guidance (Feb. 25, 2021); Endo International plc, Endo Reports Fourth-Quarter and Full-Year 2021 Financial Results (Feb. 28, 2022); Endo International plc, Endo Reports First-Quarter 2022 Financial Results (May 5, 2022).
8 The Company has appealed a district court ruling of non-infringement by Eagle Pharmaceuticals, Inc. Oral argument for this appeal was held before the Federal Circuit in July 2022. See Endo International plc, Quarterly Report (Form 10-Q) (Aug. 9, 2022), at 32. Furthermore, the Company indicated on its first quarter 2022 earnings call that second quarter Vasostrict results would include a one-time negative $25 million de-stocking impact. See Endo International plc, Q1 2022 Earnings Call (May 6, 2022), at 4. Additionally, on the same earnings call, the Company touted its recently launched ready-to-use formulation of Vasostrict, highlighting that “while early in the launch, [it was] encouraged by the market conversion to the bottle and the positive feedback … from our customers to-date.”
9 The Group believes, and recent management commentary suggests, that Qwo is currently generating a meaningful amount of negative EBITDA. See, e.g., Endo International plc, Q4 2021 Earnings Call (Mar. 1, 2022), at 7 (referencing a plan to “continuing to fund Qwo”); Endo International plc, Q1 2022 Earnings Call (May 6, 2022), at 2 (suggesting the use of cost savings to fund the Qwo clinical study). At a minimum, therefore, the Group believes that Endo will obtain an EBITDA uplift if it simply discontinues Qwo. More significantly, the Company still appears to believe that Qwo has substantial upside and has accordingly recently launched a study (APHRODITE-1) to assess and mitigate potential bruising and discoloration. See Endo International plc, Endo Aesthetics to Introduce New Clinical Study of Qwo at the Annual SCALE Meeting (May 5, 2022).
10 Specifically, as part of a restructuring initiative announced in November 2020, the Company expects to realize annualized pre-tax cash savings of approximately $85 million to $95 million by the first half of 2023. Endo International plc, Quarterly Report (Form 10-Q) (Aug. 9, 2022), at 9. Additionally, in April 2022, the Company announced another restructuring initiative, expecting to realize incremental annualized pre-tax cash savings of approximately $55 million to $65 million by the second quarter of 2023. Id. at 10.
11 These include settlements with Arkansas for $9.75 million, Mississippi for $9 million and the City and County of San Francisco for an initial payment of $5 million and subsequent payments of $500,000 a year over ten years. Endo International plc, Quarterly Report (Form 10-Q) (Aug. 9, 2022), at 28.
12 See Teva Pharmaceutical Industries Ltd., Teva Reports Second Quarter 2022 Financial Results (July 26, 2022) (announcing an agreement in principle on the primary financial terms of a nationwide settlement)
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