Being a scientist, I hate to admit that my profession's not the one with the greatest impact on a generic-drug maker's bottom line. Sure, the chemists in the laboratories have to figure out how to make the knockoffs accurately and cheaply, but the lawyers in the suits really drive these firms' sales.
Unlike most companies, where investors would like to see a big blank spot under the heading "Legal Proceedings" in the 10-K, breaking patents is the bread and butter of generic-drug makers. The longer that section is, the greater the chance that companies like Barr Pharmaceuticals (NYSE: BRL ) , Dr. Reddy's Labs (NYSE: RDY ) , or Mylan Laboratories (NYSE: MYL ) will increase sales in the future.
Over the past week, Teva (Nasdaq: TEVA ) has had more than its fair share of days in court. Let's check in and see how the suits are doing.
Courts give Teva warts
Teva and Novartis (NYSE: NVS ) have been locked in a patent dispute over Novartis' Famvir tablets, which treat genital herpes, since April of 2005. The drug had U. S. sales of about $200 million in the last four quarters -- not a blockbuster, but a prize certainly worth fighting for.
Teva gained FDA approval to market the generic drug late last month, but had agreed to hold off on launching the product until the court date last Wednesday. During that U.S. District Court case, Novartis lost its request for a preliminary injunction to stop Teva from launching its product.
Feeling good about itself, Teva went ahead and launched the generic Famvir on Friday, only to find out later in the day that Novartis was able to get an enjoining order from the Appeals court to stop Teva from selling the generic product. Teva has until today to respond to the emergency motion.
Teva may have shot itself in the foot with the early launch. It was the first to file an abbreviated new drug application (ANDA) for generic Famvir, and therefore gains a 180-day exclusive marketing agreement from the date of first commercial marketing. From the press releases, it's not clear whether Teva got far enough in the sales process for the drug to be considered marketed, but if it did, that could spell disaster. It's already wasted four of those days, and if it's not able to prevail in today's case, it could fritter away even more of its exclusivity.
Last Wednesday, Teva lost another court case -- this time with Forest Laboratories (NYSE: FRX ) , over patents surrounding its antidepressant Lexapro. An appeals court upheld a lower court's ruling from July 2006 supporting Forest's patents. Teva has been arguing since 2003 that Forest's patents weren't valid, since its manufacturing techniques were generally available.
The court case was probably a bigger win for Forest than it was a loss for Teva. Now Teva will have to wait until the patent expires in March 2012 to steal some of Lexapro's $2 billion annual sales. But if Forest had lost the case, it would have been a catastrophe, given that Lexapro is its biggest moneymaker. Not surprisingly, Forest's stock shot up more than 10% on the news.
Relieving some heartburn
The past week hasn't been all bad for the generic drug maker. On Thursday, a U.S. District Court refused Wyeth's (NYSE: WYE ) request for an injunction to keep Teva from selling generic versions of Wyeth's heartburn drug Protonix.
Teva had agreed to hold off on its launch of the generic drug until after the court's ruling. It could launch the drug now, but like Famvir, it risks losing part of its 180-day exclusive period. If it were to launch, the company would also risk having to pay restitution if it lost a later court case, which will likely have less stringent requirements for Wyeth to get its patents upheld.
The company hasn't said whether it plans to wait for a final ruling or not, but given that it only waited two days between the Famvir court date and launch, at this point I'm inclined to think it's planning on waiting. Then again, the prize -- and potential penalties -- are much larger, with Protonix having U. S. sales of $2.5 billion in the last four quarters. Maybe Teva is just weighing its options more carefully.
Teva is batting .500 with two wins and two losses for the week. While that average might earn you a Sept. 1 call-up even if you were playing in the single-A league, I'm sure Teva was hoping for a better outcome -- especially in the Famvir case. Fortunately, the lawyers will have a chance to get on the winning side of things in the case today.
For investors in generic drugmakers, I think it's important not to jump in and out of a stock on the news of every court case. Instead, investors should look for companies with a track record of breaking patents and, perhaps more importantly, a pipeline of patent dispute court dates set up.
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