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Endo prelim results in line with views

April 13, 2017

Endo Int’l (NASDAQ: ENDP) currently estimates total first quarter 2017 revenues to be between $1,015 million and $1,035 million, compared to $964 million in first quarter 2016, an increase of 5.3% to 7.4%. Additionally, Endo currently expects its first quarter 2017 adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) from continuing operations to be between $440 million and $460 million. Endo plans to report first quarter 2017 earnings results on May 9, 2017.

(Street sees Q1 revenue of $1.02B)

The unaudited financial data for the fiscal quarter ended March 31, 2017 above are preliminary, based upon Endo’s good faith estimates and subject to completion of Endo’s financial closing procedures. Endo has provided ranges for its expectations described above because the fiscal quarter closing procedures are not yet complete. While Endo expects that its final financial results for the quarterly period ended March 31, 2017, following the completion of its financial closing procedures, will be within the ranges described above, Endo’s actual results may differ materially from these estimates as a result of the completion of its financial closing procedures as well as final adjustments and other developments that may arise between now and the time that its financial results for this quarterly period are finalized.


Pursuant to an existing agreement with a wholly owned subsidiary of Novartis AG (“Novartis”), Endo’s subsidiary, Paladin Labs Inc. (“Paladin”), licensed the Canadian rights to commercialize serelaxin, an investigational drug for the treatment of acute heart failure (“AHF”). On March 22, 2017, Novartis announced that a Phase III study of serelaxin in patients with AHF failed to meet its primary endpoints. As a result, Endo has concluded that its serelaxin in-process research and development intangible asset is fully impaired resulting in a $45 million impairment charge. In addition and as a result of the serelaxin impairment, Endo is in the process of assessing the recoverability of its Paladin goodwill balance. Based on the work completed to date, Endo has determined that the estimated fair value of Paladin’s goodwill is below its book value resulting in a goodwill impairment charge. The current estimate of the goodwill impairment charge is approximately $90 million. We expect that these impairments will be recorded in the first quarter of 2017.

Endo is in the process of its first quarter 2017 financial reporting close, which, among other things, includes the identification and assessment of potential asset impairment triggering events. In addition to the items mentioned above, Endo has identified certain market conditions impacting the recoverability of a developed technology intangible asset in its U.S. Generic Pharmaceuticals segment. As a result, Endo has determined that the intangible asset is impaired. Based on the work completed to date, the current estimate of the non-cash impairment charge related to this intangible asset is approximately $50 million, which we expect to record in the first quarter of 2017. As Endo continues through its first-quarter 2017 financial reporting close, it may identify other triggering events which could lead to incremental material impairment charges being recorded in the first quarter of 2017.


As previously disclosed on its February 28, 2017 earnings conference call, Endo is assessing strategic alternatives for its Grupo Farmacéutico Somar, Sociedad Anónima Promotora de Inversión de Capital Variable (“Somar”) business. Should this strategic process continue to advance successfully, the assets and liabilities of the Somar business may eventually be classified as held-for-sale in Endo’s consolidated balance sheets. Although Endo cannot predict the ultimate timing or outcome of the strategic process, held-for-sale accounting will trigger an additional impairment review that could lead to material impairment charges. Based on progress to date and preliminary indications of interest from potential buyers, it is possible that certain Somar assets could become impaired, including intangible assets and goodwill. As of December 31, 2016, Somar’s net book value, including currency translation adjustments, was approximately $230 million.

Vaginal Mesh Update

In addition to vaginal mesh claims covered by master settlement agreements (“MSAs”), Endo is currently aware of approximately 10,500 vaginal mesh claims that have been filed, asserted or that Endo believes are likely to

be asserted. These claims have not been accrued for because Endo lacks sufficient information to determine whether any potential loss is probable. In addition, there may be other claims asserted in the future. It is currently not possible to estimate the number or validity of any such future claims. Endo expects that valid claims under the MSAs will continue to be settled. However, Endo intends to vigorously contest pending and future claims that are invalid, for which settlement is unable to be reached or that are in excess of the maximum claim amounts under the applicable MSAs.

Endo will continue to monitor the situation, and, if appropriate, Endo will make further adjustments to its product liability accrual based on new information. Endo intends to continue exploring all options as appropriate in its best interests, and depending on developments, there is a possibility that Endo will suffer adverse decisions or verdicts of substantial amounts, or that Endo will enter into additional monetary settlements. Any unfavorable outcomes as a result of such litigation or settlements with respect to any asserted or unasserted claims could have a material adverse effect on Endo’s business, financial condition, results of operations and cash flows.

From March 1, 2017, the date Endo filed its Annual Report on Form 10-K for the year ended December 31, 2016 through the date of this Current Report on Form 8-K, there have been no increases in the vaginal mesh related product liability accrual.


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