Patent? What Patent?

It's yet another patent-infringement lawsuit for TevaPharmaceuticals (NASDAQ:TEVA). Japan's fourth-largest drugmaker, Eisai (OTC BB: ESALY.PK), alleges that the Israeli generic drug developer has forgotten that Eisai owns the patent for a lucrative Alzheimer's treatment.

In a U.S. District Court filing, Eisai charged that Teva's plans to begin developing a generic version of its popular drug Aricept infringe on the patent of the treatment's active ingredient, donepezil hydrochloride, which has protection until 2010. Eisai further said it will "vigorously enforce and defend" that patent. Though Teva did not respond to the accusation, the company is often subject to patent infringement lawsuits, which stem from its aggressive encroachment on drugs that near patent expiration.

It's not surprising, really, that Teva would seek to develop a generic version of Aricept. Co-marketed with pharmaceutical giant Pfizer (NYSE:PFE), it is the most-prescribed treatment for mild to moderate symptoms of Alzheimer's disease. Eisai recorded $1.35 billion in Aricept sales in 2004. Alzheimer's is the leading cause of dementia in people 60 and older; it's estimated that 4.5 million Americans suffer from it and that by 2025, an estimated 37 million people worldwide will be afflicted. That's the biggest reason for Eisai to forcefully protect its patent: There's simply a lot of money at stake.

Generic drugs are set to enjoy a banner year in 2006. Six blockbuster drugs with sales of more than $1 billion each are set to go off-patent in the U.S., ranging from Merck's (NYSE:MRK) Zocor and Sanofi-Aventis' (NYSE:SNY) Ambien to Bristol-Myers Squibb's (NYSE:BMY) Pravachol and Pfizer's Zoloft. According to pharmaceutical consulting firm IMS Health, $23 billion in products will lose exclusivity, with more than $18 billion of that coming from the U.S.

Maintaining their patent advantage over generic drug companies will require the pharmaceutical giants to improve upon the drug profiles in their portfolios. While Teva or MylanLabs (NYSE:MYL) may develop low-cost versions of the original formulations and benefit from a six-month exclusivity window, the pharmaceuticals will have to make small formula changes or add new features to differentiate their own offerings. That creates opportunities for companies like Motley Fool Hidden Gems recommendation FlamelTechnologies (NASDAQ:FLML); it's working on just such formulations, though it currently has no products on the market. The improved formulations may allow the pharmas to extend the patents on their brand-name drugs while coexisting peacefully with their generic predecessors.

With an estimated 10% share of the generic drug market, Teva is poised to continue leading the pack. Of course, that's assuming it can remember to respect patents and avoid costly litigation that might erode shareholder value.

We've recalled further Foolishness:

• Eisai's Good Medicine
• An Opportunity Not to Forget
• Teva Is No Generic Generics Firm

Pfizer is a Motley Fool Inside Value selection. Merck is a Motley Fool Income Investor selection.

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Fool contributor Rich Duprey owns shares in Eisai, Merck, and Flamel but does not own any of the other stocks mentioned in this article. The Motley Fool has a disclosure policy.