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Watson climbs after FDA approves generic Lidoderm

NEW YORK (AP) — Shares of Watson Pharmaceuticals climbed Friday after federal regulators approved its generic version of Endo Health Solutions Inc.'s Lidoderm pain patch.

THE SPARK: Watson said its version of the patch had been approved after the market closed on Thursday. Under terms of a lawsuit settlement between Watson and Endo, Watson can begin selling its generic in September 2013. The Parsippany, N.J., company said it believes competing generics will be barred from the market for 180 days after its product goes on sale.

Endo said it is disappointed with the the Food and Drug Administration's decision. The Lidoderm patch is its biggest-selling product.

THE BIG PICTURE: Endo had sued Watson over patent infringement. The companies settled their dispute in late May, and Watson agreed not to market its generic until Sept. 15, 2013. Endo will get royalties of 25 percent on early sales of Watson's generic. It will also provide $96 million in branded Lidoderm to Watson over the first 8 months of 2013.

Watson says U.S. sales of Lidoderm are $1.2 billion.

THE ANALYSIS: Analysts said the approval is bad news for Endo, but it's not a surprise. Stifel Nicolaus analyst Annabel Samimy said the approval is the "worst case" scenario for Endo, but added that it is "fully priced into the stock and already reflected in consensus views" for the company.

Samimy and other analysts added that other companies are seeking approval for their own generics. Those could go on sale in early 2014 and further cut into Endo's revenue. Roth Capital Partners analyst Scott Henry said he thinks Endo's Lidoderm revenue will fall to about $500 million in 2014.

SHARE ACTION: Shares of Watson Pharmaceuticals Inc. rose $4.57, or 5.8 percent , to $83.20 in midday trading. Earlier the stock reached a high of $83.54. Watson stock is up 34 percent since March, when reports surfaced that Watson might buy European competitor Actavis. It agreed to buy Actavis in late April for $5.6 billion.

Shares of Endo, which is based in Chadds Ford, Pa., lost 21 cents to $31.67.

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