Teva Pharmaceuticals (NYSE: TEVA ) recently lost its latest bid to block the FDA from approving generic versions of its blockbuster multiple sclerosis (MS) drug, Copaxone. The drug, which accounted for 21% of Teva's top line and half of its profit in 2013, will lose patent protection in the U.S. on May 24.
A U.S. district court dismissed Teva's case, stating that it was premature because the FDA has not yet approved or rejected any applications for generic Copaxone. Teva has filed six petitions at the FDA over the past six years with the same demand -- to not approve any generic versions of Copaxone without requiring a full set of clinical trials.
Mylan (NASDAQ: MYL ) , India's Natco Pharma, Momenta Pharmaceuticals, and Novartis' (NYSE: NVS ) Sandoz unit all plan to launch generic Copaxone when Teva's patent expires. Those four companies are split into two teams -- Mylan is partnered with Natco, and Momenta is partnered with Sandoz.
What does generic Copaxone mean for Teva?
With a week left before Copaxone's patent expires, it's clear that Teva is running out of options. Teva had previously forecast that every additional month that Copaxone maintains market exclusivity would be worth an additional $78 million in sales.
In a previous forecast, Teva stated that net sales in 2014 would come in between $19.8 billion to $20.8 billion if Copaxone maintained market exclusivity, but if sales could fall to $19.3 billion to $20.3 billion if it faces generic competition.The outlook for Teva's bottom line is similar -- it expects full-year operating profits between $5.35 billion to $5.65 billion if Copaxone remains protected, and profits of $4.8 billion to $5.1 billion if generics hit the market.
A $550 million reduction to the bottom line definitely hurts, but it wasn't as bad as some investors had feared. Last November, The Marker published leaked profit forecasts from Teva which claimed that generic Copaxone could cause profits to fall by 42%. Teva dismissed the forecast as "outdated" and "incomplete".
While the recent ruling is good news for generics manufacturers, investors should remember that Copaxone is a very high margin product for Teva. Copaxone currently costs more than $60,000 per patient per year -- a price which has been raised several times in the past and can't be replicated by generic competitors. That high price fueled Copaxone's record global sales of $4.3 billion in 2013.
What does generic Copaxone mean for Mylan and Novartis?
Mylan can expect a smooth launch, since it signed a deal with Natco in 2008 to commercialize its version of generic Copaxone, which was previously only available in India.
Mylan has been increasing its footprint in India in recent years -- it launched a generic version of Roche's blockbuster breast cancer drug Herceptin with Biocon last November, and signed an exclusive deal with Gilead Sciences to distribute its antiviral drugs in January. Those moves were aimed at diversifying Mylan's generics business away from North America, which accounted for more than half of its generics revenue in 2013.
Launching generic Copaxone would also be an interesting move for Novartis, which already sells a leading oral MS drug, Gilenya, through its branded pharmaceuticals business. Last year, sales of Gilenya climbed 62% year-over-year to $1.9 billion.
Gilenya is one of three approved oral MS drugs, along with Biogen Idec's Tecfidera and Sanofi's Aubagio, which -- due to being oral instead of injected -- are easier to use than drugs like Copaxone. UBS expects these oral drugs to cause Copaxone's market share of 37% to decline to 25% by the end of 2014.
Although these drugs are cheaper and more convenient than Copaxone, they are still expensive. Gilenya costs $58,000 per year, Tecfidera costs $54,900, while Aubagio costs $45,000. Therefore, it's a smart move for Novartis to also add generic Copaxone to its Sandoz division, which accounted for 16% of the company's revenue in 2013.
The Foolish takeaway
In conclusion, generics makers like Mylan and Novartis will slightly benefit if they are able to get approval for generic Copaxone, but the drug would just play a smaller part in advancing larger strategies at both companies.
The clear loser here is Teva. Since demand for Copaxone is expected to wane as new oral drugs take the lead, Teva will need to rely more on growing drugs like Azilect (Parkinson's symptoms) and Treanda (leukemia) to soften the blow. Those two drugs posted double-digit sales growth with combined sales of $1.08 billion in 2013 -- not enough to replace Copaxone, but still a good place to start.
Will this stock be your next multi-bagger?
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.