Endo Pharma falls on ruling in Watson lawsuit

Shares of Endo Pharmaceutical Holdings Inc. fell Tuesday after a judge ruled against the company, which is trying to defend the patents on its Lidoderm pain patch.THE SPARK: Analysts said the U.S. District Court in Delaware ruled in favor of Watson Pharmaceuticals Inc., which is hoping to market its own generic version of Lidoderm. They said the court favored Watson's interpretation of the patent over Endo's.THE BIG PICTURE: The ruling does not overturn the patent or allow Watson to launch its generic, but it could hurt Endo's position as the companies prepare to go to trial. The trial is scheduled to begin in February.Endo declined to comment on the decision but said it has worked to diversify its business in recent years, making Lidoderm a smaller piece of its revenue. The company acquired Penwest Pharmaceuticals and Qualitest Pharmaceuticals last year for a combined price of more than $1.3 billion, and in April, it paid $2.9 billion for American Medical Systems, which makes devices and treatments for use in urology and gynecology.The company said it expects Lidoderm to provide less than 30 percent of its revenue in 2012.THE ANALYSIS: Jefferies & Co. analyst Corey Davis said the judge found that the disputed patent covered only one of a group of ingredients, as Watson had argued, while Endo argued the patent covered one or more ingredients. Davis said that if Watson's generic is approved, it will probably not reach the market until mid-2013 at the earliest.Collins Stewart analyst Louise Chen said Endo plans to appeal the ruling, and that it appears the judge did not follow precedent in his ruling.SHARE ACTION: Endo stock lost 85 cents, or 2.1 percent, to $38.89 in afternoon trading. Watson stock gained $2.34, or 3.6 percent, to $67.79.