Will Teva Be Forced to Take Its Own Medicine?

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Judging from the success of Teva Pharmaceutical Industries (Nasdaq: TEVA), you might say the most exalted employees are the lawyers who find ways to crack the patents of other drugmakers' products.

They have played a great game of offense, as Teva has muscled its way to become the world's largest maker of generics. Longtime shareholders are happy. On a split-adjusted basis, Teva's stock is up nearly 84-fold since early 1990 and about 82% since the beginning of 2005.

But can these lawyers play defense? With Teva branching out into brand-name drugs, they must protect its biggest source of revenue and profit -- the multiple sclerosis drug Copaxone -- against challengers who want to break the U.S. patents before its May 2014 expiration date.

On Sept. 14, Mylan (Nasdaq: MYL) said the Food and Drug Administration would review its application for a generic version of Copaxone. And back in July 2008, the FDA began reviewing a generic Copaxone application from the team of Momenta Pharmaceuticals (Nasdaq: MNTA) and the Sandoz generic-drug unit of Novartis (NYSE: NVS).

Unleash the lawyers
Teva shareholders know that the FDA's generic-drug review process takes time and that patent challenges often produce lawsuits. There's no litigation yet with Mylan; but in August 2008, Teva sued Momenta and Novartis for patent infringement. The case is pending, and Momenta has warned that litigation could last several years,

The longer the delay, the longer Teva and its investors benefit from Copaxone's star status. For the second quarter ending last June, Copaxone recorded a 21% sales gain over the same period last year. Its $682 million in sales represented 20% of total revenue. Credit Suisse estimates Copaxone accounted for 22% of earnings per share last year, adding that it could provide nearly 30% in 2010.

Evolving strategy
Teva has been expanding its brand-name efforts even as it continues buying generics companies, including Bentley Pharmaceuticals in July 2008 and Barr Pharmaceuticals in December 2008.

In addition to Copaxone, it sells Azilect for Parkinson's disease as well as several proprietary drugs that were part of the Barr deal. Last year, Teva acquired CoGenesys, a biotech company that will help it develop proprietary drugs and, especially, generic versions of biotech drugs.

Although generic-drug shots have been fired at Copaxone, Teva's near-term concern is defending its turf against competitors such as Avonex from Biogen Idec (Nasdaq: BIIB), Tysabri from Biogen Idec and Elan (NYSE: ELN), Betaseron from Bayer, and Extavia from Novartis, which the FDA approved last month.

At the moment, there's no panic over a generic challenge. Teva's stock remains just a few dollars short of a 52-week high. There must be a lot to like about Teva because 21 analysts have buy ratings while only one has a hold.

Still, for investors in companies that have been roughed up by Teva's patent challenges, the Copaxone case could be fun to watch.

For more generic Foolishness, check out these articles:

• More than one company is getting in on generic's gold.
• What happens when two generic companies team up.
• More fun at Teva.