Wednesday’s Top Health Care Stories: Zogenix, Endo, and Teva

Let's take a quick look at three stocks -- Zogenix (NASDAQ: ZGNX  ) , Endo International (NASDAQ: ENDP  ) , and Teva Pharmaceutical (NYSE: TEVA  ) -- which could all loom large in health care headlines this morning.

Zogenix surges after a U.S. court reverses the Massachusetts ban on Zohydro
Zogenix, the maker of the prescription painkiller Zohydro, is up 10% in pre-market trading this morning after a U.S. District Court judge stopped Massachusetts from banning sales of Zohydro yesterday. Massachusetts Governor Deval Patrick originally announced the ban on the drug on March 27, declaring a public health emergency due to the abuse of opioid painkillers. The U.S. District Court issued a preliminary injunction against Governor Patrick's order, which goes into effect on April 22.

Zohydro, which was approved last October for moderate to severe chronic pain requiring round-the-clock management, is an extended release of hydrocodone, a painkiller which is up to ten times more potent than Vicodin.

Zohydro is controversial because it is not tamper-proof, meaning that it can be crushed and dissolved for recreational use. Upon its approval, 28 state attorneys general asked the FDA to reconsider the approval, noting that similar painkillers have been implicated in prescription drug abuse. Supporters of Zohydro's approval, however, believe that the drug should be considered a viable opioid painkiller, since acetaminophen (also found in Tylenol and other common painkillers) is known to cause liver damage.

Last month, reports claimed that Purdue Pharma was planning to apply for a regulatory approval for a tamper-resistant rival painkiller to force Zohydro off the market. That development, combined with the situation in Massachusetts, caused Zogenix shares to fall more than 33% over the past month. Forecasts for Zohydro have centered around $300 million in annual sales.

Endo's AMS unit gets hit by a warning letter from the FDA
Meanwhile, the FDA just sent a warning letter to a unit of Endo International in regards to a Minnesota facility it had inspected.

The unit, known as AMS, has recently been hit by litigation regarding its transvaginal mesh products. The FDA has warned that its products could cause serious complications in women. AMS now has 15 days to respond to the FDA, and has stated that it would continue manufacturing products at the facility during the review process.

The AMS plant in question was inspected in February. During a follow-up inspection, the FDA noted that while improvements were made, the corrections were incomplete.

The AMS issue could result in higher expenses for Endo, compounding other issues: Endo's top-selling Lidoderm painkiller patch went off patent last year, and it posted a wider fourth quarter loss in February due to higher litigation costs. The company also offered a weak earnings outlook for the full year. Shares of Endo have fallen nearly 30% over the past month as a result.

Teva, Dr. Reddy, and Mylan launch generic Lunesta
Last but not least, three generics makers -- Teva, Dr. Reddy (NYSE: RDY  ) , and Mylan (NASDAQ: MYL  ) -- just reported their launches of generic Lunesta. Lunesta is a sleep aid originally manufactured by privately held Sunovion. The main patents on the drug expired in February 2014.

Lunesta was a near blockbuster last year, but fierce generic competition could fragment the market and dramatically lower the prices for eszopiclone. Therefore, the long-term impact of generic Lunesta might not be all that great for Teva, Dr. Reddy, and Mylan.

Investors should also note that Teva is currently embroiled with a conflict with several generics companies, including Mylan, over a generic version of its blockbuster multiple sclerosis drug Copaxone.

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