The "patents cliff" is a phrase describing the expiry of a patent for blockbuster drugs, the introduction of generic competition, and a drop in the profit margins of the manufacturer of the original drug. In its generic business, Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) has benefited greatly from its competitors' patents cliff, but looming in the background has always been anxiety about the day after the expiry of Teva's patent for Copaxone, a drug responsible for an estimated half of the company's profits.
The original expiry date for the patent in the US (the biggest market) was September 2015, but a 2013 legal ruling brought Teva one step closer to the cliff; The US Court of Appeals for the Federal Circuit ruled that the patent protecting Copaxone would expire in May 2014.
This ruling put Teva into a panic: the realization that its most profitable product would be subject to competition, with no adequate replacement in the pipeline, led Teva to institute a broad cost-cutting program in late 2013, including controversial layoffs that caused an outcry. A serious confrontation ensued between chairman Phillip Frost and then-CEO Jeremy Levin, culminating in the ousting of Levin and significant upheaval in Teva, which was also reflected in the underperformance of the share. Meanwhile Erez Vigodman was appointed CEO, and Teva continued its program of cutbacks designed to ensure its profits on the day after Copaxone.
Teva is taking action in three areas to maintain Copaxone. In the legal sphere, the company is buying time (a key word in the story) to continue acting in the commercial sphere to transfer as many patients as possible to the patent-protected 40 mg Copaxone.
Another sphere is regulation by the US Food and Drug Administration (FDA). As of now, no generic version has obtained FDA approval, while on the other hand, every petition filed by Teva at the FDA to require its competitors to conduct clinical trials before obtaining approval has been dismissed.
Theoretically, Teva's competitors could obtain FDA approval at any time, and would then be able to take the risk of launching "a generic Copaxone." This risk for Teva, however, was significantly reduced yesterday, because the US Supreme Court returned the case to the Court of Appeals, saying that the latter should take another look at the factual findings in favor of Teva established in the court of the first instance (which were in Teva's favor). If the generic companies take the risk of launching a generic version of Copaxone and Teva eventually wins the case, they will have to pay Teva enormous damages.
It is now very likely that Teva will have no generic competition for Copaxone before September (it is also possible that no generic product will obtain FDA approval after the patent expires, a scenario that will delay competition even further). In some senses, this brings us back to the starting point: the patent will expire in September. On the positive side, there has been progress in cutting costs and transferring patients to the double dosage, and the Teva share has been doing well, too. The negative side, however, remains as it was: Teva still has no products in its pipeline that can fill the vacuum that Copaxone will leave in the company's financial results. p>Published by Globes [online], Israel business news - www.globes-online.com - on January 21, 2015
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