Endo Pharmaceuticals (ENDP) dropped 1.8% today after a U.S. federal court ruled unfavorably in a case regarding the pain-relief patch Lidoderm. The firm has been in litigation with Watson Pharmaceuticals (WPI) over Watson's potential patent infringement. Watson has been attempting to market a generic version of Lidoderm, a product which comprises approximately 30% of Endo Pharmaceutical's revenues. Although the actual patent-infringement trial will not begin until February 2012, the court sided with Watson's interpretation of the Lidoderm patent, causing shares of WPI to rise 4.2%, and shares of ENDP to fall 1.8%.
It is my view that the court ruling will not have a significant impact on ENDP. Although Lidoderm is an important part of Endo Pharmaceuticals drug portfolio, with 30% of net revenues, its importance to the firm has been diminishing over the past few years. At one point the drug represented 60% of revenues, but the proportion has been decreasing as the firm has continued to successfully diversify its product line-up. In addition, the court ruling does not absolve Watson Pharmaceuticals from the patent-infringement accusation. Whether or not ENDP will actually face generic competition will not be decided until February 2012. With Lidoderm's impact weakening, and Endo Pharmaceuticals strong prospects in the tamper-resistant Opana, the ruling should not pose a significant threat to the firm or our investment.
-Ryan M. Kennedy
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