Makhteshim Agan and Teva settle drug dispute

Makhteshim Agan unit LycoRed gets minimum agreed damages in a suit over a drug with annual US sales of $2.8 billion.

This morning, at the request of "Globes", Judge Hila Gerstel, president of the Petah Tikva District Court , removed the gag order on the suit filed by a subsidiary of Makhteshim Agan Industries Ltd. (TASE: MAIN) against Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) in the amount of NIS 400 million - not a negligible sum even for two giants like Teva and Makhteshim Agan. Teva is traded on Nasdaq and on the local market at a market cap of $50 billion, while Makhteshim Agan is traded on the local market at a market cap of $1.6 billion. Teva CEO Shlomo Yanai was previously CEO of Makhteshim Agan, and Makhteshim Agan CEO Erez Vigodman was in the not so distant past CEO of Strauss Group.

The two sides came to a settlement a few days ago, but the suit is an interesting story that sheds light on how two of the largest companies in Israel operate.

Drug dispute

The story is as follows. LycoRed Bio, a subsidiary of Makhteshim Agan (the plaintiff), is a biotechnology company based in Yavne. Its main business is food fortification and nutritional supplements. In early 2004, LycoRed acquired the activity of a partnership called Karma Pharm. The acquisition included intellectual property rights related to drugs and developments, among them the drug development that was the subject of the lawsuit.

Karma Pharm was founded by a group of investors and entrepreneurs, among them Dr. Yoram Sela, a chemist by profession, who served as LycoRed's vice president for development from the time of the purchase of Karma Pharm until the end of 2008.Until the end of 2000, Sela worked at Teva, where, among other things, he established and managed a department called Drug Delivery, which dealt mainly with developing delayed release medicines.

Towards the end of 2000, at about the time Dr. Sela left Teva, Karma Pharm began to develop a generic drug based on the active ingredient venlafaxine hydrochloride, in the form of a delayed release capsule. At that time, an ethical drug based on this material, known by the commercial name of Effexor XR, was produced by US pharmaceutical company Wyeth. This is one of the world's best selling drugs, generating annual sales revenues in the billions of dollars.

In June this year, Teva received approval from the US Food and Drug Administration (FDA) to market its generic version of Effexor. In its announcement, Teva noted that the annual sales turnover of the drug was $2.8 billion in the US alone. Effexor is intended to treat depression and anxiety, and it has also been found effective in treating women with menopausal symptoms.

The receipt of the FDA approval added fuel to the dispute that had begun to smoulder between the two companies. Karma Pharm, it emerges from the statement of claim, chose to develop a generic version through microencapsulation, one method among many for achieving delayed release. In the summer of 2001, Karma Pharm succeeded in developing a formula for producing a venlafaxine hydrochloride capsule with a delayed release mechanism.

"A main growth engine"

Near the end of the development period, according to the lawsuit, Karma Pharm formed a connection with Teva, which began to show interest in the development. The two companies signed a confidentiality agreement, under which Teva was given confidential information about various aspects of the drug development process. After signing the confidentiality agreement, the two sides conducted commercial negotiations lasting several weeks, but they did not result in a final agreement.

In December 2002, Teva filed an application with the FDA for marketing approval for a generic version of venlafaxine hydrochloride in delayed release capsules. In response, LycoRed began the lawsuit against Teva, claiming that the latter had violated the confidentiality agreement and made improper and unlawful use of the secret information given to it. Teva, incidentally, describes this drug as one of its main growth engines for the current year and for 2011.

Teva began to market the generic version of the drug in Canada four years ago. When it was already on the market, LycoRed chose to examine its composition and compare it to the development formula that had been given to Teva.

According to the lawsuit, LycoRed found a clear, substantial similarity between Teva's generic version and its own version, and came to the conclusion that Teva violated the confidentiality agreement, stole trade secrets, and unlawfully used confidential information (including the development formula) that was transferred to it in part

The two companies recently reached a settlement before an arbitrator, Adv Reuven Behar of the firm Fischer Behar Chen Well Orion & Co., whereby Teva will pay only $2 million. Behar found that Teva had developed its drug independently, and that LycoRed's claim that Teva had copied its development had no basis. The damages awarded were the minimum that the two sides agreed upon when they began the arbitration process.

Published by Globes [online], Israel business news - - on September 19, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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