Proneuron to sue Teva for billions in Copaxone damages

Copaxone

A court ordered Teva to restore the Copaxone rights for treatment of diseases other than multiple sclerosis to Proneuron, but the patent has expired, rendering the rights useless.

The protracted case between Israeli company Proneuron Biotechnologies and Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) over the rights to Copaxone for diseases other than multiple sclerosis ended last month with a verdict in favor of Proneuron. However, it appears that the last word has not been spoken on the matter. Sources inform "Globes" that Proneuron will file a multibillion-dollar lawsuit against Teva for damages.

In January, Israel's Supreme Court, dismissed an appeal by Teva, and upheld a ruling that Teva had violated a contract with Proneuron, and therefore had to restore it with the rights to develop Copaxone for diseases other than multiple sclerosis (without damages, which were not part of the lawsuit). This right, however, has lost most of its value, because the product has become generic. Proneuron now plans to sue Teva for damages, alleging that it could have earned billions of dollars from the product, had Teva restored the rights to Proneuron in 2006, when the case began, and Copaxone's patent was still valid.

Proneuron exists as a company only for purposes of the lawsuit against Teva. Its main shareholders are founder Prof. Michal Schwartz and Israeli funds Pitango Venture Capital and Tamir Fishman. The proceedings against Teva, which have been going on for 14 years, have created reverberations because of the mutual mudslinging between the companies, including allegations by Proneuron that Teva was jeopardizing ALS patients (eventually dismissed by the court).

The story began when Teva acquired the rights to Copaxone for treatment of multiple sclerosis from the Weizmann Institute of Science. Copaxone became Teva's flagship drug, generating billions of dollars a year, and accounting for most of its profit in the past decade. Teva did not acquire the rights to use the molecule for treatment of any other disease. Schwartz, a professor from Weizmann Institute, who was not among the developers of the original Copaxone, conducted trials of the molecule, and found that she could adopt it, with slight changes, for treatment of other diseases. Proneuron was founded in order to commercialize the product.

When Teva discovered that the same molecule that was responsible for such a large proportion of its profits was likely to be sold in the market for other drugs, and possibly also to threaten the business model for the multiple sclerosis product, it had no other choice but to sign a cooperation agreement with Proneuron - an agreement that ostensibly had the potential for enlarging its most profitable and strongest brand name. The parties signed the agreement in 2001, under which Teva invested $10 million in Proneuron, and future payments according to milestones were agreed (which eventually did not take place).

The bone of contention was a clause in the agreement requiring Teva to either conduct a well-planned trial without a limited period of time for one of the diseases listed in the contract, or to return the product to Proneuron. Such clauses are often included in joint development agreements in order to make sure that the company is acquiring the product in order to bring it to market, not to bury it.

Good intentions or deliberate failure?

Teva chose to conduct a trial for ALS, while Proneuron alleged that it should be developed for other diseases. Proneuron claimed that Teva had entered this trial in the knowledge that the chances of success were poor for the sole purpose of complying with the clause in the agreement requiring that some trial be conducted in order to retain the product. Proneuron had to show in the trial that Teva had not conducted a "well-planned trial," and Proneuron indeed made this claim, and went far beyond it. Proneuron asserted that Teva had ignored evidence showing that the trial was unnecessary, and was even liable to be dangerous. Teva asserted that it had entered the trial with good intentions, with the aim of succeeding. In an internal presentation at Teva, which was entered as evidence in the trial, company sources said that this had been a trial that made it possible to gain time, and was the easiest option, although the same presentation stages that the chances of success for the product were very poor.

The Tel Aviv District Court ruled in 2015 that the trial had not been well-planned, and that Teva had to restore the product to Proneuron. The court added that there were warning signs about the trial, and it should not have begun. The court nevertheless dismissed the allegation that Teva had jeopardized patients either deliberately or in any other way. The Supreme Court upheld the District Court's finding, ruling a month ago that Teva had to restore the product to Proneuron and pay its court costs.

While the court proceedings were taking place, Proneuron was unable to develop the product for other diseases for which treatment potential was found in laboratory and animal trials. Teva could have done this, but it would have been a risky development, because a court decision was liable to return the product to Proneuron. The original agreement between the companies stated that they would jointly develop the drug for diseases such as glaucoma, Alzheimer's Disease, stroke, and Parkinson's Disease.

Could Copaxone have generated billions in revenue for these purposes? In the new legal proceedings, Proneuron will contend that it could have. No one will ever know now, because when a product is not protected by a patent (Copaxone has become a generic drug), there is no financial incentive to continue its development.

Teva made a $1.2 billion accounting provision in 2019 for various legal actions and exposures, mainly concerning opioids.

As a drug company with large-scale generic activity, Teva is exposed to many legal proceedings relating to its regular business activity. When it manufactures a generic drug, the original manufacturer is likely to sue it for patent violation. In recent years, however, the extent of Teva's legal exposure has grown substantially, and not because of its regular business activity.

Teva is currently exposed to two main legal proceedings that analysts predicted were liable to end in aggregate payments amounting to billions of dollars. The first is lawsuits in various states in the US against the companies that marketed addictive opioid pain relievers. The second is against generic drug companies for allegedly fixing prices in the US market.

In the opioid cases, Teva announced several months ago that it had reached agreement in principle on a compromise in which it would pay $250 million in cash and provide a drug that counteracts the effect of opioids, at a cost of $23 billion. The compromise settlement has not been officially signed, and it was reported late last week that a compromise proposal by drug distribution companies to 21 US states had been rejected. The fate of the compromise with Teva is unknown at this stage. At present, at least, it appears that the company will remain exposed to these legal proceedings.

Adv. Gabriel Moyal-Maor, Adv. Eleanor Stark, and Adv. Yaron Sobol from the Hamburger, Evron & Co. law firm represented Proneuron. The Tulchinsky Stern Marciano Cohen Levitski & Co. law firm represented Teva.

Published by Globes, Israel business news - en.globes.co.il - on February 16, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

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