Three developments connected to Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) are expected to occur at the beginning of June, all of which could affect the company's stock price. The first concerns Teva's flagship drug, multiple sclerosis treatment Copaxone, which has annual sales of $3 billion. Another development is a court case in which Teva is being sued for violating a patent for Neurontin, which is produced by Pfizer. The last development is connected to a cancer drug called Custirsen, which is still being developed and is not yet being marketed.
Teva, managed by CEO Shlomo Yanai, is known mainly as a producer of generic drugs; however, it also develops its own original drugs, which make up about 30% of its production. Copaxone is Teva's original flagship drug and is responsible for about 20% of company sales, and according to estimates, more than a third of its profits. Over the last few years, Teva has been preparing for a period during which the status of the drug will diminish because of competition from other multiple sclerosis drugs administered orally. But more than that, Teva is concerned about generic competition to Copaxone. A few companies are already working energetically to develop a generic version of the drug, and Teva is waging legal battles against them claiming that they are breaching the patents that protect Copaxone.
As part of the legal battle, Teva has filed a citizen's petition to the FDA. A previous petition filed by Teva was rejected two years ago following the FDA's claim that it was too early to examine the claims. In December 2010, Teva filed the petition again, and the FDA has until the beginning of June to respond.
In the most optimistic scenario for Teva investors, the FDA will declare, or will at least imply, that since Copaxone is a complex drug it is necessary to perform clinical trials before it will approve a generic version. The result will be a significant delay to generic competition in the market, since the generic companies will be forced to allocate additional time to perform clinical trials. Furthermore, clinical testing is not cheap, and it is possible that the generic companies will reevaluate the benefit they would receive from a generic Copaxone (although it is unlikely that they will relinquish their development in a hurry.)
The pessimistic scenario for Teva investors will be if the FDA decides that Teva's claims are unfounded and that there is no need to perform clinical trials. In that case, investors will turn their attention to Teva's legal proceedings against generic companies Sandoz, Momenta, Maylon and Natco, which will commence in September. If the court gives a positive indication to the generic companies (before the final ruling) the chances of an at-risk launch of a generic version will increase.
Will Teva be forced to pay Pfizer?
As a generic company, Teva is involved in many legal proceedings, usually as the defendant. One of the cases involves the drug Neurontin, or Gabepentin to give it its generic name. Before the generic version was produced, the drug, which prevents epileptic seizures, had sales of more than $2 billion a year. The generic version was launched at-risk by Teva and also by Ivax, which Teva subsequently bought out 7 years ago. Pfizer claimed that its patent for the drug was valid through 2017, but the court ruled in 2005 that there was no patent infringement. However, a higher court ruled that some facts were in dispute and called for a full trial.
At the beginning of June, the court case is expected to come to a close, at which point it will be decided whether or not Teva infringed the patent, and whether it and other generic companies will be forced to pay compensation to Pfizer. According to Pfizer, it has lost "billions of dollars" since the generic versions were launched, and when a generic company loses a case concerning an at-risk launching, it is liable to have to pay damages that can reach three times the profit that the original drug company lost.
On the other hand, Teva claims that Pfizer benefitted from increased sales of the drug as a result of illegal activity: Warner-Lambert, the company that developed the drug and was bought by Pfizer, marketed it by giving benefits to doctors and giving false information. All that's left to do now is to wait and see what the ruling will be; will Teva be forced to pay, and if so, how much?
Expanding the original pipeline
The acquisition of the US company Cephalon and the positive results from the CureTech clinical trials highlighted the range of drugs that Teva produces for the treatment of cancer. One of these drugs, Custirsen, is being developed in conjunction with Canadian company OncoGenex and is designed to treat prostate cancer. At the annual meeting of the American Society of Clinical Oncology, which will take place between June 4 and June 6, both companies will present data about the drug. Positive results can positively affect Teva's stock price, since it would be expanding its original pipeline, which today is based almost completely on Copaxone. Teva investors fear its heavy dependence on Copaxone, and therefore every move that decreases this dependence is considered a positive development. .
Published by Globes [online], Israel business news - www.globes-online.com on May 30, 2011
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