Diagnose Endo's Health Before You Invest

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NEW YORK (TheStreet) -- Some companies can't seem to get out of their own way. This has always been my biggest issue with Endo Health Solutions , a company I've consistently wanted to like. Too bad Endo hasn't been an easy company to understand.

While doing extraordinary well as a specialty drug company, outperforming rivals like Forest Labs and Teva Pharmaceutical , Endo's management decided it was time to shake things up to generate more growth. To diversify the business into such areas as services and medical records, management took on additional debt to acquire American Medical Systems, a move that over-leveraged the company.

To enter this already-established market, Endo's higher-ups decided to look for acquisitions while forfeiting a strong cash-flow-generating drug business. The services and medical records sector was highly competitive and dominated by giants like Johnson & Johnson and Abbott Labs . Endo overestimated its abilities while discounting what it already had.

A series of unfortunate events ensued. Not only did Endo fail to meet its 2012 earnings guidance, but warned that 2013 revenue and earnings-per-share targets would fall short. There was also the dire issue of Endo's portfolio of drugs, many of which were facing expiring patents, which left investors questioning the company's long-term health.

In an unsurprising move, Endo announced the departure of CEO David Holveck, who left in March of this year, almost 18 months before his contract expired. The Street welcomed the news. Shares went higher even though analysts had just downgraded the stock given the poor outlook for generic drugs. Miraculously, all of these issues are now resolved. At least it appears that way.

Endo shares are soaring to all-time highs following yet another acquisition, under the management of new CEO Rajiv De Silva. Last week, the company announced that it had reached a definitive agreement to acquire Canadian specialty drug company Paladin Labs for $77 per share, amounting to a 20% premium, or $1.6 billion.