Endo Health Solutions says penalties from federal investigation might reach $194 million

Endo Health Solutions, which will soon move its headquarters from Chadds Ford to Malvern, said Thursday night that it will more than triple the money it has set aside to cover possible penalties stemming from a federal investigation into how the company promoted and sold its Lidoderm patch painkilling drug.

Endo set aside about $53 million in the third quarter of 2012, but said Thursday that it would bump that figure to approximately $194 million.

The announcement came after the market closed Thursday. Endo's closing price was $26.25, down 12 cents on the day and near its 52-week low of $25.49.

The Office of Inspector General in the Department of Health and Human Services and then the Justice Department subpoenaed Endo in 2007 and 2011, seeking documents related to how the company promoted the painkiller.

In its third-quarter financial statement filed on Nov. 5 with the Securities and Exchange Commission, the company warned that the $53 million might not be enough and that civil and criminal charges are possible.

"In October 2012, preliminary discussions to resolve potential claims arising from this matter advanced to a point where the Company believes a loss is probable," the company said in the Nov. 5 filing. "Endo recorded a charge of $53.0 million in the third quarter of 2012, which the company believes is the minimum possible settlement; no better estimate is available at this time, and the ultimate loss, if any, could include a multiplier and be substantially in excess of this amount.

"The Company continues to cooperate with the government and to discuss resolution of the matters to which the investigation relates, but at this time, the Company cannot estimate the range of loss. These discussions are ongoing, but there is no assurance that a resolution will occur. Settlements of these investigations have commonly resulted in the payment of substantial damages and fines to the government for alleged civil and criminal violations, including a corresponding plea agreement or deferred prosecution agreement, and entry into a Corporate Integrity Agreement with the federal government."

In Thursday's press release, Endo said the $194 million figure "is the company's best current estimate of this liability."

In that same statement, Endo reaffirmed its previously stated lower expectations for earnings per share in 2013.

On Dec. 12, Endo announced that Chief Executive Officer Dave Holveck would retire in 2013.

The company said it expects to cut $60 million in costs in 2013, though that was less than it cut in 2012.

Endo has been fighting a strange fight with the U.S. Food and Drug Administration, trying to protect the revenue from another of its painkillers, Opana ER.

Because Endo and other painkiller manufacturers have been criticized because of the surge in overdose deaths by addicts, Endo created a version of the pill that is less crushable and withdrew the older version. Through regulatory requests and a lawsuit, Endo essentially sought to have its older product declared unsafe. But the FDA deemed that request to be motivated by commercial concerns and not safety interests because Endo sought to prevent generic competitors from entering the market with older crushable versions.

A link to the Dec. 21 Inquirer story on that unusual situation is here.

In Thursday's statement, Endo said it projected Opana ER net sales to drop 20 percent in 2013. The current expectation of 2012 revenue is $300 million, the company said.

Other tumult for Endo is that will soon move its employees to a new headquarters in Malvern. The company has a 12-year lease for 300,000 square feet, with options to increase the space and renew the lease. The monthly rent is $500,000, increasing by 2.25% each year thereafter 2013, according to the company's filing with the SEC.