Suit Settlement Sends Shares Skyrocketing

When generic- and branded-drug companies settle patent disputes, it's easy to tell who had the upper hand -- just look at how early the generic can be launched relative to the patent expiration.

It appears that Cubist Pharmaceuticals (Nasdaq: CBST  ) had a strong hand in its negotiations with Teva Pharmaceutical (Nasdaq: TEVA  ) . The two negotiated a settlement in which Teva can't launch a generic version of Cubist's antibiotic Cubicin until Dec. 24, 2017. Cubist is giving up 21 months of competition-free sales, but that's a reasonable trade for not having to risk its patents being invalidated in court. Cubicin is the company's only product, so seeing generic competition now would be very costly.

Cubist even worked in a few trinkets that make the deal look better. If Cubist is able to get a pediatric extension, which would extend the normal exclusivity period by six months, Teva's launch date is also extended by six months.

Teva will buy its U.S. supply of Cubicin ingredients from Cubist, which gives Cubist an opportunity to make money through the sale of the goods and by taking a cut of Teva's net profit. The company didn't disclose the numbers, so it's a little hard to know whether this is a good deal or a great one.

Investors seemed content enough with the deal. Cubist's shares are up 15% today.

Part of the increase is likely because investors hate unknowns. The risk of losing Cubicin sales has been hanging over Cubist's head for more than two years. The same type of uncertainty plagues Momenta Pharmaceuticals (Nasdaq: MNTA  ) as it waits to see if Teva will get its generic version of sanofi-aventis' (NYSE: SNY  ) Lovenox approved. Even large companies like Merck (NYSE: MRK  ) aren't immune to it.

With the patent fight settled, Cubist can get back to focusing on its pipeline. Settlement or not, generic competition comes to all drugs eventually.

Follow Cubist as it moves toward its next drug approval. Click here to add it to My Watchlist, which will help you keep track of all our Foolish analysis on Cubist.

Momenta Pharmaceuticals is a Motley Fool Rule Breakers pick. The Fool owns shares of Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1470370, ~/Articles/ArticleHandler.aspx, 11/23/2014 12:07:05 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement