Shares of Endo International plc – Ordinary Shares (NASDAQ:ENDP), Horizon Pharma PLC (NASDAQ:HZNP), Werner Enterprises, Inc. (NASDAQ:WERN), and Amsurg Corp (NASDAQ:AMSG) are struggling today as various factors weigh on the valuations of the four companies. Let’s take a closer look at the negative catalysts and what they might mean for investors long-term.
Endo International plc – Ordinary Shares (NASDAQ:ENDP) is down by 12.23% in afternoon trading because Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is still cratering after Citron Research published a report accusing the company of sending some business through phantom specialty pharmacies to avoid auditor scrutiny. Like Valeant, Endo International plc – Ordinary Shares (NASDAQ:ENDP) uses specialty pharmacies to distribute some of its drugs, including TESTOPEL and AVEED, among others, but the company says specialty pharmacies only account for 3% of its total revenue. Endo further states the specialty pharmacies it does business with are fully independent and there are no ownership interests or options to buy, etc. Shareholders are selling despite that fact, because of relative valuations.
According to our data, hedge funds were bullish on Endo International plc – Ordinary Shares (NASDAQ:ENDP) in the second quarter. A total of 67 funds out of the 730 that we track reported stakes in the company worth $4.46 billion, representing 27.10% of its outstanding shares, in the previous round of 13F filings, versus 63 funds and $4.18 billion respectively a quarter earlier.
We at Insider Monkey monitor hedge fund activity. But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 37 month period beginning from September 2012, with returns amounting to 102% (see the details here).
Horizon Pharma PLC (NASDAQ:HZNP) is off by 10.92% in afternoon trading also due to Valeant Pharmaceuticals’ practices being scrutinized. Horizon Pharma has a similar business model to Valeant in that it hikes prices more than it should to please shareholders. The New York Times recently published an article detailing how Horizon’s Duexis costs $1,500-per-month despite being just a combination of the generic equivalents of Pepcid and Motrin, which cost no more than $40 and $20-per-month, respectively. The Times article further states that Horizon has increased the price of Duexis by a factor of ten since late 2011 and has done similar things with Vimovo, a similar type of generic combination drug that the company acquired in 2013. Given the regulatory and media scrutiny around buying older drugs and hiking prices to realize a profit, Horizon Pharma may need to spend more on research and development to grow its revenues. More spending on R&D will slow growth and lower margins in the short run. The good news for shareholders is that Horizon Pharma PLC (NASDAQ:HZNP) doesn’t have any ownership stakes in pharmacies or options to purchase stakes in any pharmacy, so it isn’t playing any accounting games to inflate revenue.
On the next page, we analyze why Werner Enterprises, Inc and AmSurg Corp are also down today.