The Motley Fool: A Pain Specialist Buys a Technology Call Option

Endo Health Solutions (NASDAQ: ENDP  ) has not been shy about using M&A to rebuild its growth prospects in the wake of losing patent coverage on Lidoderm and Opana ER. While prior management didn't do well with its M&A, new management has already made some smart (albeit not necessarily cheap) deals for Paladin Labs and Boca Pharmaceutical. Now management is going for for a different sort of deal -- the acquisition of NuPathe (NASDAQ: PATH  ) is hardly a slam dunk value-adding deal, but the upfront consideration of $105 million excluding deal costs is not a terribly high price to pay for taking a chance.

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A Pain Specialist Buys a Technology Call Option

Seeking Alpha: Endo Health Has A Lot Of Work To Do

How do you ruin a specialty pharmaceutical business? Take a ridiculously lucrative stream of free cash flow generated by a strong pain franchise and reinvest it badly-reasoned acquisitions in the device space. To be fair, though, "ruin" in the case of Endo Health Solutions (ENDP) still means a stock that has climbed almost 150% over the past ten years and left both the S&P 500 and drug companies like Teva (TEVA) and Mylan (MYL) in the dust.

The relevant question now is where Endo Health goes from here. The company's one-time fortress of pain medications is now due to erode away in the face of generic competition, while the company's device business has not only failed to generate good cash flows but has actually created potentially large product liability claims. New management has already laid out bold cost-cutting moves and explicitly intends to close multiple M&A transactions. At this point, then, this stock is basically a referendum on management - if you believe they can acquire a better future for Endo, you probably like the stock. If you believe Endo won't be able to acquire enough growth, it probably looks like a hold at best.

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Endo Health Has A Lot Of Work To Do

Investopedia: Endo Health Solutions Needs Some Solutions Of Its Own

Running a specialty drug business is hard enough on its own - just ask Salix Pharmaceuticals (Nasdaq:SLXP), Forest Labs (NYSE:FRX) or Warner Chilcott (Nasdaq:WCRX) shareholders - but Endo Health Solutions (Nasdaq:ENDP) decided to up the difficulty level up going deeply into debt to fund a diversification into devices, services and medical records. With generics challenging the branded drug business and improvements needed in the AMS business, this is a tricky stock right now. Although Endo has a good history of generating solid free cash flow, I think investors are justified in questioning management's vision and this isn't an especially compelling stock today.

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