Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

As far as role models go, you can do rather better than Valeant.

But Dublin-domiciled Endo International can't seem to stop mimicking the struggling Canadian specialty pharmaceutical firm. It hired Valeant's former COO as its CEO in 2013, did a tax inversion, then went on a debt-fueled specialty-pharma M&A spree. Also like Valeant, a rapid decline in Endo's business forced it to slash 2016 revenue forecasts by $500 million in May.

Endo is now thinking of emulating Valeant's attempts to dig out of its debt hole by selling assets, Reuters reported late Monday. Endo shares rose by 16 percent on Tuesday, though much of that was due to a rare piece of good news for the company -- a new patent on a blood-pressure drug called Vasostrict. 

Like Valeant, Endo would be selling from a position of weakness. Many of its units are struggling. It did many of its deals when both the market and the specialty pharma model were red hot; now it may have to sell assets at a low point for both. Every potential buyer knows the company is motivated to sell. That's not exactly a recipe for premium sale prices or substantial debt reduction.

Dive Partners
Endo and Valeant have followed similar paths to market ignominy. Percent appreciation.
Source: Bloomberg

Endo has been the worst performer in the S&P 500 this year. Even after Tuesday's share price jump, it's not a particularly close contest: 

Back of the Pack
Endo's shares have declined more this year than any other company on the S&P 500.
Source: Bloomberg

Part of that is due to a general backlash against the specialty pharma business model, in a generally terrible year for drug stocks. But the company can't blame sentiment for the very real decline in its business.

Endo's transformation -- from mid-sized drug-and-device company to analyst-darling mini-conglomerate, and then to debt-laden market anvil -- was rapid. Since Rajiv De Silva took over as CEO in the spring of 2013, the company has done 11 deals worth at least $12.8 billion. Its debt load has gone from a fairly stable $3 billion to more than $8.5 billion, more than double its current $3.5 billion market cap. 

Endo went on its buying spree as valuations and premiums for pharma assets and companies were on the rise. They're way down this year.

Timing Is Everything
Endo went on a buying spree as drug asset valuations rose. Now it may sell them as prices plummet.
Source: Bloomberg

Like Valeant, Endo has found it's far easier to buy assets than to mold them all into a coherent business. And some of its acquisitions may not have been the pearls of the pharmaceutical industry.

Unexpected generic competition for one of its best-selling products, Voltaren Gel, helped prompt its big guidance cut. Its older generics business has been under pricing pressure, and the market for its opioids has shrunk. Tuesday's good news about Vasostrict, produced by Endo's Par Pharmacuetical division, suggests its biggest deal (at $8 billion) has potential. But there's a lot of weakness elsewhere. 

Endo may be able to shave off some of its debt or swap assets to become more focused. But any move is unlikely to be at terms investors like very much. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net