Patent challenges are the hallmark of the generic drug industry. Generic drugmakers have to take the pharmaceutical companies to court to invalidate existing drugs' patent protection. If they win, they'll earn their own six-month window of exclusivity to sell their generic version competition-free.
Israeli generic drug firm Teva Pharmaceuticals (NASDAQ:TEVA) is currently engaged in a battle with Japan's fourth-largest pharmaceutical company, Eisai (OTC BB: ESALY.PK), over the latter's heartburn drug Aciphex. Eisai sold more than $1.3 billion of the drug in 2006, and Teva figures it can gain large percentage of that market by selling its generic version of the drug, rabeprazole sodium, in a controlled-release tablet.
Although Eisai is taking Teva to court, alleging patent infringement, Teva was just awarded FDA approval of its abbreviated New Drug Application (ANDA) to market its generic version. The ANDA must not only show that the generic is essentially the same as the name-brand drug, but also that it provides the same dosage. The case goes to trial in less than two weeks.
Generic drugs are big business, and with a number of high-profile brand-name drugs coming off patent soon, Teva, Watson Pharmaceuticals (NYSE:WPI), and Motley Fool Stock Advisor recommendation Barr Pharmaceuticals (NYSE:BRL) are all chomping at the bit to sell their generic versions of the drugs without competition.
Some pharmaceuticals are denting generics' ability to harm their business by deliberately licensing a generic version of a given drug to someone else. These are called "authorized generics," and they've raised the ire of the generic drug industry. The courts have held that since the authorized generics are being sold under the original new drug application (NDA), they can compete against approved generic drugs during the six-month period of exclusivity. Last year, Sanofi-Aventis (NYSE:SFY) launched an authorized generic of its drug Allegra to combat the generic version made by Teva and Barr. At the end of the six-month period, the authorized generic had captured 37% of the market.
Aciphex, a proton pump inhibitor, was originally introduced in Japan in 1997 as Pariet. It came to the U.S. two years later under the current brand name; it's co-marketed here with Johnson & Johnson (NYSE:JNJ). Aciphex is sold in 79 countries, and although it has more than $1 billion in sales, it pales in comparison to market leaders Nexium, from AstraZeneca (NYSE:AZN), and Prevacid from TAP Pharmaceuticals.
Despite Teva's FDA win, the courts seem to favor Eisai. It won a summary judgment a few months back against Teva and Dr. Reddy's Labs (NYSE:RDY), and with the Aciphex trial starting soon, Teva's victory may be short-lived.
Barr Labs is a recommendation of Motley Fool Stock Advisor. A 30-day free trial subscription is yours for the asking. Johnson and Johnson is an Income Investor pick.
Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
