Zacks_Analysts' Blog : Watson Brings Lipitor's Generic - Analyst Blog

In what seems like one of the biggest generic launches in the history of US, Watson Pharmaceuticals, Inc. (WPI) announced the launch of an authorized generic version of Pfizer Inc.’s (PFE) drug, Lipitor. Pfizer markets Lipitor as an adjunct to diet to reduce elevated total cholesterol, LDL (bad cholesterol), triglycerides and to increase HDL (good) cholesterol.

According to the supply and distribution agreement, Pfizer will manufacture and supply all dosage strengths of the authorized generic product to Watson Pharma, who, thereafter, will market and distribute the same in the US. In return, Pfizer will receive a share of the net sales from Watson Pharma. The agreement, which runs until November 30, 2016, is expected to add about 48 to 53 cents per share to Watson Pharma’s 2011 earnings.

According to IMS Health, Lipitor sales amounted to $7.8 billion for the twelve months ended September 30, 2011.

Earlier during the week, Watson Pharma announced that the US Food and Drug Administration (FDA) approved its abbreviated new drug application (ANDA) for Bayer’s (BAYRY) oral contraceptive pill Yaz. We note that Watson Pharma and Bayer are currently involved in a patent litigation lawsuit concerning this product.

According to IMS Health, Yaz sales came in at $173 million for the twelve months ended September 30, 2011.

Our View

We currently have an Outperform 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 the company’s Global Generic segment’s sales, which climbed 39% during the third quarter of 2011 amounting to $802.5 million. Additionally, we expect Watson Pharma’s 2011 results to be positively impacted by the sales of generic versions of Concerta and Lipitor.