Teva Pharmaceutical (NYSE:TEVA) reported fourth-quarter financials this week that reflect a significant drop-off in demand for its best-selling drug, Copaxone, a widely used multiple sclerosis drug.

Patents protecting Copaxone from generic competition were invalidated last year and Mylan (NASDAQ:MYL) won approval of its version from the Food and Drug Administration last fall. Based on Teva Pharmaceutical's latest results, it appears that Mylan's alternative is capturing market share, and if that continues, it could pay off handsomely for Mylan's investors.

What's the backstory?

Copaxone is a best-selling MS drug, and until recently, it's been a big reason behind Teva Pharmaceutical's success. Prior to Mylan's launch, Copaxone was generating $4 billion in annual sales for Teva Pharmaceutical, or about 20% of its total revenue.

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Copaxone was originally approved at a once-daily 20 mg dose. However, patent protection for that dose expired years ago, prompting Teva Pharmaceutical's research and development team to create a longer-lasting 40 mg option that can be taken less frequently.

After winning approval for its 40 mg formulation in 2014, Teva Pharmaceutical successfully switched 85% of its Copaxone users to it, staving off competition from a 20 mg generic developed by Momenta Pharmaceuticals (NASDAQ:MNTA) and Novartis (NYSE:NVS).

That breathing room, though, proved to be temporary. Despite attempts to keep generic interlopers from producing their own 40 mg version, a court decision invalidated key patents, clearing the way for Mylan to launch its 40 mg version last October.

Shifting sales

When Mylan won FDA approval for its version, Teva Pharmaceutical said a launch by the former would be considered "at risk" because the unfavorable patent decision was still on appeal. 

In spite of the risk of penalties if Teva Pharmaceutical won its appeal, Mylan made its 40 mg version available to patients within days of receiving FDA approval. So far, that seems smart. In December, Teva Pharmaceutical dismissed its pending district court litigation against Mylan on two patents after the U.S. District Court for the District of Delaware sided with the latter. As a result, Teva's only remaining patent challenge against Mylan is the appeal tied to Copaxone's three-times-weekly dosing.

With fewer hurdles remaining, it's increasingly likely that Mylan's going to chip away at Copaxone's market share. Prior to Mylan's launch, Copaxone's U.S. market share for total MS prescriptions was 28.8%, according to IMS Health. Now, it's 25.7%.

What is the investor takeaway?

Mylan won't report its fourth-quarter results until Feb. 28, but based on Teva Pharmaceutical's comments, I imagine that Mylan's version of Copaxone provided a tailwind. In Q4, Copaxone sales tumbled 19% to $821 million because U.S. sales fell 25%.

Teva Pharmaceutical's full-year 2018 sales guidance suggests that declining sales trend could accelerate this year. Management only expects sales of between $18.3 billion to $18.8 billion in 2018 -- a $4 billion haircut from last year, half of which Teva Pharmaceutical is blaming on Copaxone competition.

Ultimately, it remains to be seen how much of Copaxone's prescription volume moves to Mylan, but if it's a significant amount, then it could add hundreds of millions of dollars to the top line, making Mylan an intriguing stock to own in portfolios.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.