WPI in Patent Infringement Lawsuit

Watson Pharmaceuticals Inc. ( ) recently announced the filing of an Abbreviated New Drug Application (ANDA) with the US Food and Drug Administration (FDA) for a generic version of Depomed Inc.’s ( DEPO ) diabetes drug, Glumetza. The drug is used as an adjunct to diet and exercise to improve glycemic control in adults with type II diabetes.

In response, Depomed and Valeant International together filed a lawsuit against Watson Pharma in the United States District Court for the District of Delaware, to prevent the generic company from commercializing generic Glumetza before the patents expire.

Since the lawsuit was filed under the provisions of the Hatch-Waxman Act, the FDA cannot approve Watson Pharma's ANDA until 30 months from the date of Depomed receiving the notice for the ANDA filing or until the court order, whichever is earlier.

According to IMS Health, US sales of Glumetza amounted to $80 million, for the twelve months ended February 28, 2012.

Separately, Watson Pharma announced the launch of an authorized generic version of Shionogi, Inc.’s drug, Fortamet. The drug is available as an adjunct to diet and exercise to lower blood glucose in patients 17 years or older.

According to IMS Health, US sales of Fortamet came in at $82 million, for the twelve months ended February 28, 2012.

Our View

We currently have a Neutral recommendation on Watson Pharma. The stock carries a Zacks #2 Rank (Buy rating) in the short run.

We expect new generic product launches over regular intervals to help drive the company’s Global Generic segment’s sales, which climbed 46% during 2011 to $3.32 billion, driven by the generic launch of Pfizer Inc.’s ( PFE - Analyst Report ) Lipitor and Johnson & Johnson’s ( JNJ - Analyst Report ) Concerta.