Wyeth Calls Teva's Bluff

It looks like Teva Pharmaceuticals (Nasdaq: TEVA  ) might have to work on its poker face a little more.

Last month, the generic-drug maker launched a copycat version of Wyeth's (NYSE: WYE  ) and Nycomed's heartburn medication, Protonix. Then, three days later, Teva agreed to stop selling the drug so that it could have time to talk it out with the patent holders. At the time, I said the launch seemed like a good move for Teva, since it forced the patent holders to the negotiation table.

Well, negotiations must have broken down, because Wyeth and Nycomed announced on Tuesday that they would be launching their own version of the generic drug. They're not giving up on their belief that the patent holds until 2010, just trying to minimize the damage before the courts can rule.

Assuming the negotiations were going nowhere, it's a shrewd move by Wyeth. It punishes Teva, since the generic price will drop because of the additional generic competition. Now the pressure is on Teva to settle, since it doesn't stand to gain as much and still risks having to pay triple damages if it loses the patent battle that is set to begin in the second half of this year.

Interestingly, Wyeth's move seems to have spurred India's Sun Pharmaceuticals to launch its generic version of the drug through its American partner, Caraco Pharmaceutical Laboratories (AMEX: CPD  ) . While the additional competition isn't good for Teva, it does mean there is at least one more generic-drug maker that thinks the patent is invalid.

If the standoff continues much longer, the generic competition is going to have serious repercussions for the drug, which logged almost $1.5 billion of sales in the first nine months of 2007. It's not unheard of to see revenues from branded drugs drop more than 50% after a generic launch.

There are some additional winners and losers in this high-stakes standoff. Pharmacy benefit managers such as Medco Health Solutions (NYSE: MHS  ) and Express Scripts (Nasdaq: ESRX  ) should benefit from the new generic drug, since they're able to leverage generic drugs more than their branded counterparts. On the losing end, the availability of generic Protonix in the pharmacies may hurt AstraZeneca (NYSE: AZN  ) , since it makes a rival heartburn-blocking drug, Nexium.

I have no idea who will ultimately win this standoff, but my guess is that the negotiators for both sides probably have strong enough stomachs that they don't need their heartburn medications.

Our Foolishness is anything but generic:

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