Another pharmaceutical firm with Valeant's business model is getting slapped

Endo Pharmaceuticals is getting pounded, down 10%.

It’s a recovery from the stock’s 15% decline earlier in the trading day.

Endo has a business model that looks a lot like Valeant Pharmaceuticals, though not as dramatic. Rather than spend money on R&D, it acquires companies to add to its portfolio of products.

It then uses aggressive acquisition based accounting to calculate its revenue.

Valeant has been under intense pressure for over a month over questions regarding price gouging and the business practices of a once-unknown specialty pharmacy that it was forced to sever ties with called Philidor.

On Wednesday, U.S. Senators Susan Collins (R-Maine) and Claire McCaskill (D-Missouri) announced the launch of a bipartisan investigation into price gouging at several pharmacies, including Valeant.

Endo was not included in the probe, but McCaskill directly attacked Valeant’s business model in her statement.

“Some of the recent actions we’ve seen in the pharmaceutical industry — with corporate acquisitions followed by dramatic increases in the prices of pre-existing drugs — have looked like little more than price gouging,”McCaskill said.

Here’s Endo’s 5-day chart:

Endo’s third quarter results, reported on Thursday morning, showed the same characteristics of aggressive accounting and acquisitions as Valeant’s.

Here’s a snippet of what the company reported (emphasis ours):

  • Third quarter revenues of $US746 million, a 14 per cent increase from third quarter of 2014
  • Third quarter reported $US3.84 diluted (GAAP) loss per share from continuing operations and $US1.02 adjusted diluted EPS from continuing operations
  • U.S. Branded Pharmaceuticals third quarter revenue increase of 27 per cent primarily attributable to the acquisition of Auxilium Pharmaceuticals
  • U.S. Generic Pharmaceuticals continues strong growth in third quarter with 15 per cent revenue increase over third quarter 2014
  • International Pharmaceuticals third quarter results on-track and aligned with Company expectations
  • Affirms revenue and adjusted diluted EPS guidance from continuing operations for full year 2015 and EPS guidance for 2016
  • Company conducting portfolio optimization process to realign U.S. Branded resources toward long-term growth drivers
  • Third quarter GAAP results include pre-tax non-cash intangible and goodwill impairment charges

This sounds a lot like Valeant too:

As part of Endo’s planned expansion of its International Pharmaceuticals business unit and to further diversify the Company’s financial profile, it recently announced multiple strategic transactions designed to increase focus on the core pharmaceuticals business line within its Litha Group. This included the acquisition of a broad product and R&D portfolio from the Aspen Group, which closed in October 2015, and the strategic divestiture of a portfolio of non-core products, which is expected to close by early 2016.

Not a good look these days.

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