CEPH Cephalon (MM)

Watson Pharmaceuticals Inc. (WPI) recently announced that the US Food and Drug Administration (FDA) approved the company’s generic version of Pfizer Inc.’s (PFE) oral contraceptive Lybrel. Watson Pharma plans to launch the generic drug, levonorgestrel and ethinyl estradiol tablets, USP, 0.09 mg/0.02 mg, in the near future.

According to IMS health, Lybrel sales amounted to $12 million for the twelve months ended April 30, 2011.

Last week, Watson Pharma announced the filing of an Abbreviated New Drug Application (ANDA) with the FDA to market its generic version of Pfizer’s erectile dysfunction (ED) drug, Viagra (sildenafil citrate) tablets.

In response, Pfizer filed a lawsuit against Watson Pharma in the United States District Court for the Southern District of New York. Since Pfizer has filed a suit within 30 days of the ANDA filing, the FDA cannot approve Watson Pharma’s generic Viagra until November 6, 2013 or until the court ruling, whichever is earlier.

Watson Pharma is seeking approval for the 25 mg, 50 mg and 100 mg dosage formulations of sildenafil citrate tablets.

Moreover, last month, Watson Pharma launched the authorized generic of Cephalon Inc.’s (CEPH) Amrix (15 mg and 30 mg) and Johnson & Johnson’s (JNJ) Concerta in the US.

While Amrix is used to help control muscle spasm associated with acute, painful musculoskeletal conditions, Concerta is a treatment for attention deficit hyperactivity disorder (ADHD) in children aged 6 to 17 and adults aged 18 to 65.

Watson Pharma has an agreement with Anesta (a subsidiary of Cephalon), under which Anesta manufactures and supplies all the dosage strengths of the authorized generic of Amrix to Watson Pharma, which, in turn, markets the product in the US. For the deal, Watson Pharma receives sales-based payments.

Additionally, the company has an agreement with Johnson & Johnson, under which the latter manufactures and supplies all the dosage strengths of the authorized generic of Concerta to Watson Pharma, which distributes the product in the US.

Our View

We currently have a Neutral recommendation on Watson Pharma, which carries a Zacks #3 Rank (short-term Hold rating). We expect new generic product launches over regular intervals to help drive the company’s Global Generic segment’s sales, which are expected in the range of $2.9 billion to $3.1 billion in 2011. The first quarter 2011 Global Generics sales amounted to $600.0 million, representing a year-over-year increase of 10%.

 
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