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Watson Pharmaceuticals Inc. recently announced that it has filed an Abbreviated New Drug Application (ANDA) with the U.S. Food and Drug Administration (FDA) for the approval of a generic version of Shire’s ulcerative colitis drug, Lialda.

In response, Shire along with Cosmo Technologies Ltd., and Guiliani International Ltd. filed a suit against Watson Pharma in the U.S. District Court for the Southern District of Florid, to prevent the generic company from commercializing its generic drug prior to the expiration of Lialda’s patent. Since the lawsuit was filed under the provisions of the Hatch-Waxman Act, the FDA cannot approve Watson Pharma's ANDA for up to 30 months from the date that Shire received notice of the ANDA filing or until final resolution of the matter before the court, whichever occurs earlier.

According to the IMS Health data, sales of Lialda in the U.S. amounted to $390 million for the 12 months ended March 31, 2012.

Last month, Watson Pharma was in another patent infringement lawsuit, when the company announced the filing of an ANDA with the 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 U.S. District Court for the District of Delaware, to prevent Watson Pharma from commercializing generic Glumetza before the patents expire.

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 the new generic product launches over regular intervals to help drive sales of the company’s Global Generic segment, which climbed 86% in the first quarter of 2012 to $1.12 billion.

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