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Watson Pharmaceuticals Inc. recently confirmed that it has filed an abbreviated new drug application (ANDA) with the US Food and Drug Administration (FDA) to market a generic version of Abbott Laboratories' (ABT - Free Report) cholesterol drug, Niaspan.

In response, Abbott Labs has filed a lawsuit against Watson Pharma in the United States District Court for the District of Delaware. The company is seeking to prevent the generic company from commercializing its product before the patents expire. Since the lawsuit was filed under the provisions of the Hatch-Waxman Act, therefore the FDA cannot approve Watson Pharma's ANDA until 30 months from the date Abbott Labs received the notice for the ANDA filing or until the court order, whichever is earlier.

According to IMS Health, US sales of Niaspan amounted to $1.2 billion for the twelve months ended January 31, 2012.

We note that Watson Pharma has an agreement with Abbott Labs to market the authorized generic version of Prometrium in the US. Earlier during the month, Watson Pharma launched its authorized generic version of Prometrium, which is used for the prevention of endometrial hyperplasia in non-hysterectomized postmenopausal women who are receiving conjugated estrogen tablets. The drug is also used for the treatment of secondary amenorrhea.

According to the agreement, Abbott Labs will manufacture and supply all dosages of the authorized generic product to Watson Pharma, who will then market and distribute the same in the US. The companies will be sharing the profits depending on sales figures.

According to IMS Health data, Prometrium sales amounted to $198 million for the twelve months ended January 31, 2012.

Our View

We currently have a Neutral recommendation on Watson Pharma. The stock carries a Zacks #3 Rank (Hold 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 - Free Report) Lipitor and Johnson & Johnson’s (JNJ - Free Report) Concerta.

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