Endo, Watson Settle Patent Dispute - Analyst Blog
June 04 2012 - 12:38PM
Zacks
Endo Pharmaceuticals (ENDP) recently announced
that it has entered into an agreement to settle two patent
infringement lawsuits against Watson
Pharmaceuticals (WPI), related to Endo’s lead product,
Lidoderm (lidocaine patch 5%).
Although a trial was held on one of these two cases in February
2012, a ruling has yet to come. To mitigate the risk regarding the
uncertainty of the court’s decision, the companies mutually decided
to resolve the issue.
Under the terms of the agreement, Watson Pharma will not market
a generic version of Lidoderm until the US Food and Drug
Administration (FDA) approves Watson Pharma's abbreviated new drug
application (ANDA) for its product. If Watson Pharma gains approval
before September 15, 2013, the company will not be allowed to
launch its product until that day except in certain
circumstances.
Meanwhile, Endo will provide $12 million (wholesale acquisition
cost) worth of branded Lidoderm product to Watson Pharma every
month from January through August 2013. If Watson Pharma fails to
gain FDA approval by the end of 2013, Endo will provide $6.67
million worth of branded Lidoderm product per month in 2014 until
Watson Pharma gains FDA approval.
In the event of Watson Pharma not gaining approval by the end of
2014, the amount of branded Lidoderm will increase to $7.11 million
from January 2015 through September 2015 for each month that Watson
Pharma fails to gain FDA approval.
Endo cannot launch an authorized generic unless any company
other than Watson Pharma launches generic Lidoderm or for 7.5
months following the launch of Watson Pharma’s product, whichever
is earlier.
Watson Pharma is required to pay a royalty of 25% on gross
profit during any exclusivity period it may enjoy following the
launch of its generic product. The royalty will be payable until
another generic including an authorized generic enters the
market.
We note that Endo filed an amendment to its Citizen Petition
(CP) with the FDA in March 2012. The company has asked the FDA to
publicly address concerns regarding the approval requirements for
generic versions of Lidoderm. The CP is currently under FDA
review.
Lidoderm is used for the relief of pain associated with post
herpetic neuralgia (PHN) and generated US sales of $1.2 billion for
the twelve months ending March 31, 2012, as per IMS Health
Data.
Our Recommendation
We have a Neutral stance on Endo Pharma. The stock carries a
Zacks #3 Rank (Hold rating) in the short run.
ENDO PHARMACEUT (ENDP): Free Stock Analysis Report
WATSON PHARMA (WPI): Free Stock Analysis Report
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