Overview

Endo International plc i(ENDP) s an Ireland-domiciled, global specialty pharmaceutical company focused on generic and branded pharmaceuticals. The company aim to be the premier partner to healthcare professionals and payment providers, delivering an innovative suite of generic and branded drugs to meet patients’ needs. Endo International plc was incorporated in Ireland in 2013 as a private limited company and re-registered effective February 18, 2014 as a public limited company.¹

The company's ordinary shares are traded on the NASDAQ Global Market (NASDAQ) under the ticker symbol “ENDP.” References throughout to “ordinary shares” refer to Endo International plc’s ordinary shares, 1,000,000,000 authorized, par value $0.0001 per share. In addition, Endo International has 4,000,000 euro deferred shares outstanding, par value of $0.01 each.

The company's global headquarters are located at Minerva House, Simmonscourt Road, Ballsbridge, Dublin 4, Ireland (telephone number: 011-353-1-268-2000) and its U.S. headquarters are located at 1400 Atwater Drive, Malvern, Pennsylvania 19355 (telephone number: 484-216-0000).

Across all of its businesses, the company generated total revenues of $3.47 billion, $4.01 billion and $3.27 billion in 2017, 2016 and 2015, respectively.

The company's focus is on pharmaceutical products and the company target areas where the company believe the company can build leading positions. The company use a differentiated operating model based on a lean and nimble structure, the rational allocation of capital and an emphasis on high-value research and development (R&D) targets. While its primary focus is on organic growth, the company evaluate and, where appropriate, execute on opportunities to expand through the acquisition of products and companies in areas that serve patients and customers and that the company believe will offer above average growth characteristics and attractive margins. The company believe its operating model and the execution of its corporate strategy will enable it to create shareholder value over the long-term.

As of December 31, 2017, the three reportable business segments in which the Company operates were: (1) U.S. Generic Pharmaceuticals, (2) U.S. Branded Pharmaceuticals and (3) International Pharmaceuticals. Differences in economic and other characteristics between its Sterile Injectables product portfolio, which is currently part of its U.S. Generic Pharmaceuticals segment, and the remaining U.S. Generic Pharmaceuticals segment products have been heightened by recent competitive pressures and other industry trends impacting sales and profitability. In response to these trends, in February 2018, the company made changes to the way the company manage and evaluate its business. As a result, its first quarter 2018 Quarterly Report on Form 10-Q will reflect a change in segments. The company's Sterile Injectables product portfolio, which was part of its U.S. Generic Pharmaceuticals segment as of December 31, 2017, will be presented as a new segment named “U.S. Branded - Sterile Injectables.” Additionally, its current U.S. Branded Pharmaceuticals segment will be renamed “U.S. Branded - Specialty & Established Pharmaceuticals.” Subsequent to this change, the company will have four reportable business segments: (1) U.S. Generic Pharmaceuticals, (2) U.S. Branded - Specialty & Established Pharmaceuticals, (3) U.S. Branded - Sterile Injectables and (4) International Pharmaceuticals. Each of these segments will represent a separate reporting unit for goodwill testing purposes. Under U.S. GAAP, Endo International is required to test the goodwill of the reporting units impacted by the change described above both immediately before and after the segment realignment. This analysis, which the company expect to complete in connection with its first quarter 2018 financial reporting close, is expected to result in an impairment to the goodwill of the new U.S. Generic Pharmaceuticals reporting unit, the amount of which could be material.

U.S. Generic Pharmaceuticals

The company's U.S. Generic Pharmaceuticals segment, which accounted for 66%, 64% and 51% of total revenues in 2017, 2016 and 2015, respectively, focuses on high-barrier-to-entry products, including first-to-file or first-to-market opportunities that are difficult to formulate or manufacture or face complex legal and regulatory challenges. A first-to-file product, also known as a Paragraph IV product, refers to a generic product for which the Abbreviated New Drug Application (ANDA) containing a patent challenge to the corresponding branded product was the first to be filed with the U.S. Food and Drug Administration (FDA). A first-to-market product refers to a product that is the first marketed generic equivalent of a branded product for reasons apart from statutory marketing exclusivity, such as the generic equivalent of a branded product that is difficult to formulate or manufacture. First-to-file products offer the opportunity for 180 days of generic marketing exclusivity, except for competing authorized generic products, to the extent Endo International is successful in litigating any patent challenges and receive final FDA approval of the products. First-to-market products allow it to mitigate risks from competitive pressure commonly associated with commoditized generic products.

The product offerings of this segment consist of a differentiated product portfolio including solid oral extended-release, solid oral immediate-release, abuse-deterrent products, liquids, semi-solids, patches, powders, ophthalmics, sprays and sterile injectables and include products in the pain management, urology, central nervous system disorders, immunosuppression, oncology, women’s health and cardiovascular disease markets, among others. The company's U.S. Generic Pharmaceuticals segment is among the largest U.S. generics company based on market share. The company's largest U.S. Generic Pharmaceuticals manufacturing sites are in Chestnut Ridge, New York; Irvine, California; Rochester, Michigan; and Chennai, India; which handle the production, assembly, quality assurance testing and packaging of its products. The majority of the products the company manufacture are produced in its U.S. facilities.

This segment consists of its legacy generics business together with the generic pharmaceuticals products obtained through its September 25, 2015 acquisition of Par Pharmaceutical Holdings, Inc. (Par), which develops, licenses, manufactures, markets and distributes innovative and cost-effective pharmaceuticals that help improve patient quality of life.

U.S. Branded Pharmaceuticals

The company's U.S. Branded Pharmaceuticals segment, which accounted for 28%, 29% and 39% of its total revenues in 2017, 2016 and 2015, respectively, includes a variety of branded prescription products to treat and manage conditions in urology, urologic oncology, endocrinology, pain and orthopedics. The products that are included in this segment include XIAFLEX®, SUPPRELIN® LA, TESTOPEL®, NASCOBAL® Nasal Spray, AVEED®, OPANA® ER, PERCOCET®, VOLTAREN® Gel, LIDODERM®, TESTIM® and FORTESTA® Gel, among others.

This segment consists of its legacy branded business together with the branded products obtained through its January 29, 2015 acquisition of Auxilium Pharmaceuticals, Inc. (Auxilium), a fully integrated specialty pharmaceutical company with a focus on developing and commercializing innovative products for specific patients’ needs in orthopedics, dermatology and other therapeutic areas, and its September 25, 2015 acquisition of Par.

International Pharmaceuticals

The International Pharmaceuticals segment, which accounted for 7%, 7% and 10% of total revenues in 2017, 2016 and 2015, respectively, includes a variety of specialty pharmaceutical products sold outside the U.S., primarily in Canada through its operating company Paladin Labs Inc. (Paladin). This segment’s key products serve growing therapeutic areas, including attention deficit hyperactivity disorder (ADHD), pain, women’s health and oncology.

This segment also included:  its South African business, which was sold in July 2017 and consisted of Litha Healthcare Group Limited (Litha) and certain assets acquired from Aspen Holdings in October 2015 and (ii) its Latin American business consisting of Grupo Farmacéutico Somar, S.A.P.I. de C.V. (Somar), which was sold in October 2017. The company expect this segment’s revenues to continue to decline in 2018 due to the divestitures of Litha and Somar.

Strategy

The company's strategy is to focus on its core assets, a leading generics business and a specialty branded pharmaceutical business, that deliver high quality medicines to patients through excellence in development, manufacturing and commercialization. Through a lean and efficient operating model, Endo International is committed to serving patients and customers while continuing to innovate and provide products that make a difference in the lives of patients. The company strive to maximize shareholder value by adapting to market realities and customer needs.

Endo International is committed to driving organic growth at attractive margins by improving execution, optimizing cash flow and leveraging its market position, while maintaining a streamlined cost structure throughout each of its businesses. Specific areas of management’s focus include:

• U.S. Generic Pharmaceuticals: Focusing on developing or acquiring high-barrier-to-entry products, including first-to-file or first-to-market opportunities that are difficult to formulate or manufacture or face complex legal and regulatory challenges.
• U.S. Branded Pharmaceuticals: Accelerating performance of organic growth drivers in its Specialty Products portfolio, expanding margin in its Established Products portfolio and investing in key pipeline development opportunities.
• International Pharmaceuticals: Operating in regulated markets with durable revenue streams and where physicians play a significant role in choosing the course of therapy and expanding distribution of certain of its products outside of the U.S.

The company remain committed to strategic R&D across each business unit. Going forward, while its primary focus will be on organic growth, the company will evaluate and, where appropriate, execute on opportunities to expand through acquisitions of products and companies.

Competitive Strengths

To successfully execute its strategy, the company must continue to capitalize on its following core strengths: Experienced and dedicated management team. Endo International has a highly skilled and customer-focused management team in critical leadership positions across all of Endo. The company's senior management team has extensive experience in the pharmaceutical industry and a proven track record of developing businesses and value creation. This experience includes improving business performance through organic revenue growth and through the identification, consummation and integration of licensing and acquisition opportunities.

Focus on the differentiated products of its generics business. The company develop high-barrier-to-entry generic products, including first-to-file or first-to-market opportunities that are difficult to formulate or manufacture or face complex legal and regulatory challenges. The company believe products with these characteristics will face a lesser degree of competition and therefore provide longer product life cycles and higher profitability than commodity generic products. The company's business model continues to focus on being the lowest-cost producer of products in categories with higher barriers to entry and lower levels of competition by leveraging operational efficiency. The company's U.S. Generic Pharmaceuticals segment is focused on categories where there are fewer challenges from low-cost operators.

Operational excellence. Endo International has efficient, effective and high-quality manufacturing capabilities across a diversified array of dosage forms. The company believe its comprehensive suite of technology, manufacturing and development competencies increases the likelihood of success in commercializing high-barrier-to-entry products and obtaining first-to-file and first-to-market status on future products, yielding more sustainable market share and profitability. For example, its capabilities in the rapidly growing U.S. market for sterile drug products, such as injectables and ophthalmics, and sterile vial and hormonal capabilities afford it with a broader and more diversified product portfolio and a greater selection of targets for potential development.

The company believe that its competitive advantages include its integrated team-based approach to product development that combines its formulation, regulatory, legal, manufacturing and commercial capabilities; its ability to introduce new generic equivalents for brand-name drugs; its quality and cost-effective production; its ability to meet customer and/or patient expectations; and the breadth of its existing generic product portfolio offerings. Through its recent strategic assessments, Endo International has taken further steps to optimize its generic, specialty branded and international product portfolios and now look to capitalize on a much stronger and durable in-line product portfolio and R&D pipeline. Endo International is focused only on those marketed products that deliver acceptable returns on investment, thereby leveraging its existing platform to drive operational efficiency.

Growth of its branded Specialty Products portfolio while leveraging the strength of its Established Products portfolio. Endo International has assembled a portfolio of branded prescription products offered by its U.S. Branded Pharmaceuticals segment to treat and manage conditions in urology, urologic oncology, endocrinology, pain and orthopedics. The company's Specialty Products portfolio includes, among other products: XIAFLEX®, SUPPRELIN® LA, TESTOPEL®, NASCOBAL® Nasal Spray and AVEED®. The company's Established Products portfolio includes, among other products: PERCOCET®, VOLTAREN® Gel, LIDODERM®, TESTIM® and FORTESTA® Gel. For additional detail, see “Products Overview.”

Continuing proactive diversification of its business. The company's primary focus is on organic growth. However, the company will evaluate and, where appropriate, execute on opportunities to expand through acquisitions of products and companies in areas that will serve patients and customers and that the company believe will offer above average growth characteristics and attractive margins. In particular, the company will look to continue to enhance its product lines by acquiring or licensing rights to additional products and regularly evaluating selective acquisition opportunities.

Research and development expertise. The company's R&D efforts are focused on the development of a balanced, diversified portfolio of innovative and clinically differentiated products. The acquisition of Auxilium added multiple, strategically-aligned programs to its branded pharmaceutical R&D pipeline with the addition of collagenase clostridium histolyticum (CCH). Through its U.S. Generics business, the company seek out and develop high-barrier-to-entry generic products, including first-to-file or first-to-market opportunities. The company periodically review its generic products pipeline in order to better direct investment toward those opportunities that the company expect will deliver the greatest returns. The company remain committed to R&D across each business unit with a particular focus on assets with inherently lower risk profiles and clearly defined regulatory pathways. The company's current R&D pipeline consists of products in various stages of development. For additional detail, see “Select Development Projects.”

The company's R&D and regulatory affairs staff is based primarily in Chestnut Ridge, New York, Chennai, India, at its global headquarters in Dublin, Ireland and at its U.S. headquarters in Malvern, Pennsylvania.

Targeted sales and marketing infrastructure. The company's sales and marketing activities are primarily based in the U.S. and Canada and focus on the promotion of its Specialty Products portfolio. The company market its products directly to specialty physicians, including those specializing in urology, orthopedics, pediatric endocrinology and bariatric surgery. The company's sales force also targets retail pharmacies and other healthcare professionals. The company distribute its products through independent wholesale distributors, but the company also sell directly to retailers, clinics, government agencies, doctors, independent retail and specialty pharmacies and independent specialty distributors. The company's marketing policy is designed to provide physicians, pharmacies, hospitals, public and private payers and appropriate healthcare professionals with products and relevant, appropriate medical information. The company work to gain access to healthcare authority, pharmacy benefit managers and managed care organizations’ formularies (lists of recommended or approved medicines and other products), including Medicare Part D plans and reimbursement lists, by demonstrating the qualities and treatment benefits of its products within their approved indications.

Products Overview

U.S. Generic Pharmaceuticals

The U.S. Generic Pharmaceuticals segment’s product portfolio has over 280 generic prescription product families including solid oral extended-release, solid oral immediate-release, abuse-deterrent products, liquids, semi-solids, patches (which are medicated adhesive patches designed to deliver the drug through the skin), powders, ophthalmics (which are sterile pharmaceutical preparations administered for ocular conditions), sprays and sterile injectables and products in the pain management, urology, central nervous system disorders, immunosuppression, oncology, women’s health and cardiovascular disease markets, among others.

Generic drugs are the pharmaceutical and therapeutic equivalents of branded products and are generally marketed under their generic (chemical) names rather than by brand names. Generic products are substantially the same as branded products in dosage form, safety, efficacy, route of administration, quality, performance characteristics and intended use, but are generally sold at prices below those of the corresponding branded products and thus represent cost-effective alternatives for consumers.

Typically, a generic drug may not be marketed until the expiration of applicable patent(s) on the corresponding branded product, unless a resolution of patent litigation results in an earlier opportunity to enter the market. For additional detail, see “Governmental Regulation.” However, its generics portfolio also contains certain authorized generics, which are generic versions of branded drugs licensed by brand drug companies under a New Drug Application (NDA) and marketed as generics. Authorized generics do not face regulatory barriers to introduction and are not prohibited from sale during the 180-day marketing exclusivity period granted to the first-to-file ANDA applicant. The company's authorized generics include lidocaine patch 5% (LIDODERM®), budesonide (Entocort® EC), and diclofenac sodium gel (VOLTAREN® Gel), among others. The company believe Endo International is a partner of choice to larger brand companies seeking an authorized generics distributor for their branded products. Endo International has been the authorized generic distributor for such companies as AstraZeneca plc, Bristol-Myers Squibb Company, Novartis AG (Novartis) and Merck & Co., Inc.

The following table displays the product revenues to external customers in its U.S. Generic Pharmaceuticals segment for the years ended December 31, 2017, 2016 and 2015 (in thousands):

Sterile Injectables consists of high-barrier-to-entry injectable products that are generally difficult to manufacture and may therefore face a lesser degree of competition. Products in this category include VASOSTRICT®, currently the first and only vasopressin injection with an NDA approved by the FDA, and ADRENALIN®. Endo International has been issued five patents relating to VASOSTRICT® by the U.S. Patent and Trademark Office (PTO). These patents expire in January 2035 and were submitted to the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (known as the Orange Book). These patents are presently listed in the Orange Book. The Orange Book listing requires any ANDA or 505(b)(2) applicant (as further described below under the heading “Governmental Regulation”) seeking FDA approval for a generic version of VASOSTRICT® prior to patent expiry to notify it of its ANDA or 505(b)(2) filing before it can obtain FDA approval. Any ANDA or 505(b)(2) filer seeking approval prior to patent expiry whose application was not received prior to submission of the patent information would be subject to a 30-month stay of marketing approval by the FDA upon its initiation of Hatch-Waxman litigation against the ANDA or 505(b)(2) filer within the statutory time period.

New Launches and Alternative Dosages includes liquids, semi-solids, patches, powders, ophthalmics, sprays and new product launches. Products are included in New Launches during the calendar year of launch and the subsequent calendar year such that the period of time any product will be considered a New Launch will range from thirteen to twenty-four months. Products in the New Launches category include, among others, ephedrine sulfate injection, vigabatrin powder for oral solution and neostigmine injection, which were launched in 2017, and ezetimibe tablets, quetiapine ER tablets and the authorized generic of VOLTEREN® Gel, which were launched in 2016.

U.S. Branded Pharmaceuticals

The following table displays the product revenues to external customers in its U.S. Branded Pharmaceuticals segment for the years ended December 31, 2017, 2016 and 2015 (in thousands):

Specialty Products Portfolio

Endo commercializes a number of products within the market served by specialty distributors and specialty pharmacies, and in which healthcare practitioners (HCPs) can purchase and bill payers directly (the buy and bill market). The company's current offerings primarily relate to two distinct areas:  urology treatments, which focus mainly on Peyronie’s disease (PD) and testosterone replacement therapies (TRT) for hypogonadism; and (ii) orthopedics/pediatric endocrinology treatments, which focus on Dupuytren’s contracture (DC) and central precocious puberty (CPP).

Key product offerings in this category include the following:

• XIAFLEX®, which is indicated for the treatment of adult patients with DC with an abnormal buildup of collagen in the fingers which limits or disables hand function. It is also indicated for the treatment of adult men with PD with a collagen plaque and a penile curvature deformity of thirty degrees or greater at the start of therapy. XIAFLEX® is the first and only FDA-approved non-surgical treatment for PD.
• SUPPRELIN® LA, which is a soft, flexible 12-month hydrogel implant based on its hydrogel polymer technology that delivers histrelin acetate, a gonadotropin releasing hormone (GnRH) agonist and is indicated for the treatment of CPP in children.
• TESTOPEL®, which is a unique, long-acting implantable pellet indicated for TRT in conditions associated with a deficiency or absence of endogenous testosterone.
• NASCOBAL® Nasal Spray, which is a prescription medicine used as a supplement to treat vitamin B12 deficiency and is the only FDA-approved B12 nasal spray.
• AVEED®, which is a novel, long-acting testosterone undecanoate for injection for the treatment of hypogonadism. AVEED® is dosed only five times per year after the first month of therapy.

Established Products Portfolio

Endo’s Established Products portfolio’s current treatment offerings primarily relate to two distinct areas:  pain management, including products in the opioid analgesics and osteoarthritis pain segments and for the treatment of pain associated with post-herpetic neuralgia; and (ii) urology, which focuses mainly on treatment of hypogonadism. The Company’s legacy pain portfolio products are managed as mature brands.

Key product offerings in this category include, among others, the following:

• PERCOCET®, which is an opioid analgesic approved for the treatment of moderate-to-moderately-severe pain.
• VOLTAREN® Gel, which is a topical prescription treatment for the relief of joint pain of osteoarthritis in the knees, ankles, feet, elbows, wrists and hands. VOLTAREN® Gel delivers effective pain relief with a favorable safety profile.
• LIDODERM®, which is a topical patch product containing lidocaine, approved for the relief of pain associated with post-herpetic neuralgia, a condition thought to result after nerve fibers are damaged during a case of Herpes Zoster (commonly known as shingles).
• TESTIM® (and its authorized generic), which is a topical gel indicated for TRT in conditions associated with a deficiency or absence of endogenous testosterone.
• FORTESTA® Gel (and its authorized generic), which is a patented two percent (2%) testosterone transdermal gel and is a treatment for men suffering from hypogonadism.

Also included within this product portfolio is OPANA® ER, an opioid agonist indicated for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. In March 2017, the company announced that the FDA’s Drug Safety and Risk Management and Anesthetic and Analgesic Drug Products Advisory Committees voted that the benefits of reformulated OPANA® ER (oxymorphone hydrochloride extended release) no longer outweigh its risks. In June 2017, the company became aware of the FDA’s request that the company voluntarily withdraw OPANA® ER from the market, and in July 2017, after careful consideration and consultation with the FDA, the company decided to voluntarily remove OPANA® ER from the market. During the second quarter of 2017, the company began to work with the FDA to coordinate an orderly withdrawal of the product from the market. By September 1, 2017, the company ceased shipments of OPANA® ER to customers and the company expect the New Drug Application will be withdrawn in the coming months.

International Pharmaceuticals

The company's International Pharmaceuticals segment includes a variety of specialty pharmaceutical products sold outside the U.S., primarily in Canada through its operating company Paladin Labs Inc. (Paladin). This segment’s key products serve growing therapeutic areas, including attention deficit hyperactivity disorder (ADHD), pain, women’s health and oncology.

Select Development Projects

U.S. Generic Pharmaceuticals Pipeline

The company's primary approach to generic pharmaceutical product development is to target high-barrier-to-entry generic products, including first-to-file or first-to-market opportunities. The company expect such product opportunities to result in products that are either the exclusive generic or have two or fewer generic competitors when launched, which the company believe tends to lead to more sustainable market share and profitability for its product portfolio.

As of December 31, 2017, its U.S. Generic Pharmaceuticals segment has over 175 products in its pipeline, which included approximately 100 ANDAs pending with the FDA representing approximately $30 billion of combined annual sales for the corresponding branded products in 2017. Of the 100 ANDAs, approximately 40 represent first-to-file opportunities or first-to-market opportunities. The company periodically review its generic products pipeline in order to better direct investment toward those opportunities that the company expect will deliver the greatest returns. This process can lead to decisions to discontinue certain R&D projects that may reduce the number of products in its previously reported generic pipeline.

Collagenase Clostridium Histolyticum

Collagenase clostridium histolyticum (CCH) is currently approved and marketed in the U.S. under the trademark XIAFLEX® for the treatment of both DC and PD (two separate indications). Endo International is progressing the branded cellulite treatment development program for CCH. The company completed a Phase 2b clinical trial for this program, the results of which were released in November 2016. An End of Phase 2 meeting with the FDA occurred in early 2017 and, in February 2018, the company initiated two identical Phase 3 clinical trials for CCH for the treatment of cellulite. The multicenter, randomized, double-blind, placebo-controlled studies will evaluate the safety and ability of CCH to reduce the appearance of cellulite.

Endo International has global marketing rights for CCH for the treatment of cellulite. The company also have the right to further develop CCH for additional indications, including Dupuytren’s nodules, adhesive capsulitis, lateral hip fat, plantar fibromatosis and human and canine lipomas.

Competition

Generic Pharmaceuticals

In the generic pharmaceutical market, the company face intense competition from other generic drug manufacturers, brand name pharmaceutical companies through authorized generics, existing brand equivalents and manufacturers of therapeutically similar drugs. The company's major competitors in the generics market, including Teva Pharmaceutical Industries Limited (Teva), Mylan N.V., Sandoz (a division of Novartis AG) and Impax Laboratories, Inc. (Impax), vary by product.

The company make a significant portion of its sales to a relatively small number of drug wholesalers and retail drug store chains. These customers play a key role in the distribution chain of its pharmaceutical products. Drug wholesalers and retail drug store chains have undergone, and are continuing to undergo, significant consolidation, which has resulted in these groups gaining additional purchasing leverage that has increased the pricing pressures on its business. Additionally, the emergence of large buying groups representing independent retail pharmacies and other drug distributors, and the prevalence and influence of managed care organizations and similar institutions, enable those groups to demand larger price discounts on its products. For example, McKesson Corporation and Wal-Mart Stores, Inc. entered into an agreement to jointly source generic pharmaceuticals and Express Scripts, through a wholly owned subsidiary, Innovative Product Alignment, LLC, announced it will participate in Walgreens Boots Alliance Development GmbH group purchasing organization. As a result of these alliances, the consolidation among wholesale distributors and the growth of large retail drug store chains, a small number of purchasers control a significant share of purchases and have gained more purchasing power that has heightened competition among generic drug producers for the business of this consolidated customer base.

Newly introduced generic products with limited or no other generic competition typically garner higher prices relative to commoditized generic products. As such, its primary strategy is to compete in the generic product market with a focus on high-value, first-to-file or first-to-market opportunities, regardless of therapeutic category, and products that present significant barriers to entry for reasons such as complex formulation or regulatory or legal challenges. For additional detail, see “The company's Competitive Strengths - Focus on the differentiated products of its generics business.”

At the expiration of any statutory generic exclusivity period, other generic distributors may enter the market, resulting in significant price declines. Consequently, maintaining profitable operations in generic pharmaceuticals depends, in part, on its continuing ability to select, develop, procure regulatory approvals of, overcome legal challenges to, launch and commercialize new generic products in a timely and cost efficient manner and to maintain efficient, high quality manufacturing capabilities. For additional detail, see “The company's Competitive Strengths-Operational excellence.”

Branded Pharmaceuticals

The company's branded pharmaceutical products compete with products manufactured by many other companies in highly competitive markets throughout the U.S. and internationally, primarily through Paladin. Competitors include many of the major brand name and generic manufacturers of pharmaceuticals. With respect to branded pharmaceuticals, its competitors, including Mylan N.V., Allergan plc (Allergan), Purdue Pharma, L.P. (Purdue), Jazz Pharmaceuticals plc (Jazz), Shire plc (Shire), Horizon Pharma plc (Horizon) and Mallinckrodt plc (Mallinckrodt), among others, vary depending on therapeutic and product category, dosage strength and drug-delivery systems.

The company compete principally through targeted product development and its acquisition and in-licensing strategies. The competitive landscape in the acquisition and in-licensing of pharmaceutical products has intensified in recent years as a result of a reduction in the number of compounds available and an increase in competitors bidding on available assets. In addition to product development and acquisitions, other competitive factors in the pharmaceutical industry include product efficacy, safety, ease of use, price, demonstrated cost-effectiveness, marketing effectiveness, service, reputation and access to technical information.

Most new products that the company introduce must compete with other products already on the market or products that are later developed by competitors. If competitors introduce new products, delivery systems or processes with therapeutic or cost advantages, its products can be subject to progressive price reductions and/or decreased volume of sales. Accordingly, the competitive environment of the branded product business requires it to continually seek out technological innovations and to market its products effectively. To successfully compete for business of managed care and pharmacy benefits management organizations, the company must often demonstrate that its products offer not only medical benefits but also cost advantages as compared with other forms of care.

Some of its current branded products face competition not only from other brands, but also from generic versions. Such products include, among others, PERCOCET®, VOLTAREN® Gel, LIDODERM® and TESTIM®. Manufacturers of generic pharmaceuticals typically invest far less in R&D than research-based pharmaceutical companies and therefore can price their products significantly lower than branded products. Accordingly, when a branded product loses its market exclusivity, it normally faces intense price competition from generic forms of the product. Due to their significantly lower prices, generic versions, where available, may be substituted by pharmacies or required in preference to the branded version under third-party reimbursement programs.

In addition to those listed above, Endo International is aware of certain competitive activities involving certain of its branded products. For a description of these competitive activities, including the litigation related to Paragraph IV Certification Notices, see Note 14. Commitments and Contingencies in the Consolidated Financial Statements, included in Part IV, Item 15 of this report "Exhibits, Financial Statement Schedules".

Seasonality

Although its business is affected by the purchasing patterns and concentration of its customers, its business is not materially impacted by seasonality.

Major Customers

The company primarily sell its generic and branded pharmaceuticals to wholesalers, retail drug store chains, supermarket chains, mass merchandisers, distributors, mail order accounts, hospitals and government agencies. The company's wholesalers and distributors purchase products from it and, in turn, supply products to retail drug store chains, independent pharmacies and managed health care organizations. Customers in the managed health care market include health maintenance organizations, nursing homes, hospitals, clinics, pharmacy benefit management companies and mail order customers. Total revenues from customers that accounted for 10% or more of its total consolidated revenues during the years ended December 31, 2017, 2016 and 2015 are as follows:

Revenues from these customers are included within each of its segments. As a result of consolidation among wholesale distributors and the growth of large retail drug store chains, a small number of large wholesale distributors control a significant share of the market, and the number of independent retail drug stores and small retail drug store chains has decreased. Some wholesale distributors have demanded that pharmaceutical manufacturers, including it, enter into distribution service agreements (DSAs) pursuant to which the wholesale distributors provide the pharmaceutical manufacturers with specific services, including the provision of periodic retail demand information and current inventory levels and other information. Endo International has entered into certain of these agreements.

Patents, Trademarks, Licenses and Proprietary Property

As of February 20, 2018, the company held approximately: 243 U.S. issued patents, 64 U.S. patent applications pending, 551 foreign issued patents, and 150 foreign patent applications pending. In addition, as of February 20, 2018, Endo International has licenses for approximately 41 U.S. issued patents, 36 U.S. patent applications pending, 157 foreign issued patents and 72 foreign patent applications pending. The following table sets forth information as of February 20, 2018 regarding patents relating to each of its most significant products:

The effect of these issued patents is that they provide it with protection by virtue of its ability to exclude others from making, using, selling, offering for sale and importing that which is covered by their claims. The coverage claimed in a patent application can be significantly reduced before the patent is issued. Accordingly, the company do not know whether any of the applications the company acquire or license will result in the issuance of patents, or, if any patents are issued, whether they will provide significant proprietary protection or will be challenged, circumvented or invalidated. Because unissued U.S. patent applications are maintained in secrecy for a period of eighteen months and U.S. patent applications filed prior to November 29, 2000 are not disclosed until such patents are issued, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, the company cannot be certain of the priority of inventions covered by pending patent applications. Moreover, the company may have to participate in interference and other inter parties proceedings declared by the PTO to determine priority of invention, or in opposition proceedings in a foreign patent office, either of which could result in substantial cost to it, even if the eventual outcome is favorable to it. There can be no assurance that any patents, if issued, will be held valid by a court of competent jurisdiction. An adverse outcome could subject it to significant liabilities to third parties, require disputed rights to be licensed from third parties or require it to cease using such technology.

The company believe that its patents, the protection of discoveries in connection with its development activities, its proprietary products, technologies, processes and know-how and all of its intellectual property are important to its business. Many of its products, including certain of its generic products, are sold under trademarks. To achieve a competitive position, the company rely on trade secrets, non-patented proprietary know-how and continuing technological innovation, where patent protection is not believed to be appropriate or attainable. In addition, as outlined above, Endo International has a number of patent licenses from third parties, some of which may be important to its business. See Note 11. License and Collaboration Agreements in the Consolidated Financial Statements, included in Part IV, Item 15 of this report "Exhibits, Financial Statement Schedules". There can be no assurance that any of its patents, licenses or other intellectual property rights will afford it any protection from competition.

The company rely on confidentiality agreements with its employees, consultants and other parties to protect, among other things, trade secrets and other proprietary technology. There can be no assurance that these agreements will not be breached, that the company will have adequate remedies for any breach, that others will not independently develop equivalent proprietary information or that other third parties will not otherwise gain access to its trade secrets and other intellectual property.

The company may find it necessary to initiate litigation to enforce its patent rights, to protect its intellectual property or trade secrets or to determine the scope and validity of the proprietary rights of others. Litigation is costly and time-consuming, and there can be no assurance that its litigation expenses will not be significant in the future or that the company will prevail in any such litigation. See Note 14. Commitments and Contingencies in the Consolidated Financial Statements, included in Part IV, Item 15 of this report "Exhibits, Financial Statement Schedules".

References

1. ^ https://fintel.io/doc/sec-endp-endo-international-10k-2018-february-27-17973