In 10 days, the US Supreme Court will hear arguments by Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) about the validity of its patent on Copaxone, its most profitable drug. Sales of the multiple sclerosis treatment totaled $2 billion in the first half of 2014, just before competition from generic drugs. The drug accounts for an estimated half of Teva's profit, so the ruling at the end of the process (not the same day) will have a significant effect on the company. The hearing will be held on October 15 (the day before Simchat Tora), meaning that trading will not take place in Israel on that day or the next one.
The justices will hear Teva's appeal against the shortening of its patent's validity. In July 2013, the US Federal Appeals Court ruled that the patent protecting Copaxone would expire in May 2014, not September 2015. The patent therefore expired over four months ago, but competing generic drugs have so far not entered the market, because the US Food and Drug Administration's (FDA) food chain has not yet approved them. One of Teva's competitors, which is developing a "generic Copaxone," is Mylan. Without any connection to Copaxone, its share jumped 11% over the past two trading days, putting the company's market cap at $18.8 billion. The share's leap followed an upward revision in the company's third-quarter forecasts and speculation about a merger between it and Teva.
Wells Fargo analysts claim that such a merger is likely to be financially attractive, but is strategically illogical, because Teva is unlikely to make a major acquisition in the generic field. Managed by Erez Vigodman, Teva trades on the Tel Aviv Stock Exchange (TASE) and the New York Stock Exchange (NYSE) at a $46.9 billion market cap.
Any delay in generic competition for Copaxone is financially significant for Teva. In the past, the company reported that each month of delay in a generic launch would add $78 million to its net revenue and $0.08 to its share price in 2014. Furthermore, Teva will have more time to switch its patients to the new version of Copaxone, which is administered three times weekly - a version that is patent protected.
Teva filed an appeal against the US Federal Appeals Court ruling, and the Supreme Court agreed to hear its appeal. Ahead of the hearing, Deutsche Bank recently published a review, in which it stated, "A positive result is likely to give Teva more time to switch patients to the new version of Copaxone."
Analysts Gregg Gilbert and Gregory Fraser wrote that while the issue facing the Court was a legal one that did not specifically concern the validity of the disputed patent, one possibility was that the Supreme Court could rule that the Appeals Court had erred in ruling the patent invalid, and return the issue to that court.
They added that such a measure would extend the legal timetable beyond late 2014-early 2015. They said that such a delay would significantly raise their forecasts for Teva's cash flow and share price. They mentioned that in addition to the legal timetable, there was also a regulatory timetable, and that the FDA could approve a generic version of Copaxone at any time.
The analysts believe that it is difficult to predict the result of the Supreme Court hearing, but they did mention a past statistic: of six cases in which the Supreme Court conducted a hearing of this type, it had upheld the Appeal Court ruling on only one occasion. In the other five cases, the Supreme Court overturned the ruling or returned it for further hearing. Another important statistic is that the average period between the hearing and the rule was 58 days.
Published by Globes [online], Israel business news - www.globes-online.com - on October 5, 2014
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