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Endo (ENDP), Watson (WPI) Reach Lidoderm Patent Challenge Settlement

 May 29, 2012 08:33 AM

(By Balaseshan) Endo Health Solutions Inc. (NASDAQ:ENDP) and Watson Pharmaceuticals Inc. (NYSE:WPI) have reached a settlement agreement resolving all outstanding patent infringement lawsuits related to Lidoderm (lidocaine patch 5%), a local anesthetic used to relieve post-shingles pain.

A trial was held on the first of these cases in February 2012, and this resolution was reached prior to the Judge issuing a decision in the case. Lidoderm is indicated for relief of pain associated with post-herpetic neuralgia.

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Watson is unable to market a generic version of Lidoderm until the U.S. Food and Drug Administration (FDA) approves Watson's abbreviated new drug application (ANDA) for its lidocaine patch 5% product. If the FDA approves Watson's ANDA prior to September 15, 2013, Watson must wait until that day to market its generic product, except under certain limited circumstances.

The license will be exclusive as to an authorized generic version of Lidoderm until the earlier of a third party generic launch or seven and one half months after Watson's launch of its generic product. Endo will receive 25% of the gross profit generated on Watson's sales of its generic version of Lidoderm during Watson's period of exclusivity.

Endo will provide $96 million in branded Lidoderm product, based on wholesale acquisition cost, to Watson during the first eight months of 2013.

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In the event that Watson has not received FDA approval to launch its own lidocaine topical patch 5% by January 1, 2014, Endo will provide $80.04 million in branded Lidoderm product, based on wholesale acquisition cost, to Watson in 2014 over a period of twelve months.

And in the event that Watson has not received FDA approval to launch its own lidocaine topical patch 5% by January 1, 2015, Endo will provide $64 million in branded Lidoderm product, based on wholesale acquisition cost, to Watson over a period of nine months in 2015. Watson's availability of brand product would cease upon the launch of any generic version of Lidoderm.

The agreement reflects the uncertainty created by the regulatory challenges facing generic manufacturers seeking to market a generic version of Lidoderm. In December 2006, Endo filed a Citizen Petition (CP) with FDA raising questions about whether FDA's proposed approval requirements for generic Lidoderm were sufficient to determine bioequivalence.

The CP raised a number of factors that should be considered by FDA, including the appropriate safety and efficacy metrics, in establishing bioequivalence for a locally acting topical drug that produces a unique partial sensory block in patients suffering from Post Herpetic Neuralgia (PHN).

In March 2012, Endo submitted an amended CP highlighting the scientific and regulatory support for requiring generic manufacturers to conduct comparative clinical endpoint studies to demonstrate bioequivalence to locally acting topical products like Lidoderm. The Citizen Petition is currently under review by FDA and Endo continues to believe in the merits of the arguments set forth in the CP.

Endo expects to take a charge in reported earnings in the second quarter of 2012, which could be material, primarily related to the fair value on a probability adjusted basis of branded Lidoderm product to be provided to Watson under the terms of the settlement agreement.

For the twelve months ending March 31, 2012, Lidoderm had total U.S. sales of about $1.2 billion according to IMS Health data.

ENDP closed Friday's session up 0.87% at $33.57, while WPI ended down 0.12% at $72.67.



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