Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Why The Pfizer Inc. (PFE)-Teva Pharmaceutical Industries Ltd (ADR) (TEVA) Settlement Affects the Whole Industy

Generic-drug makers are always on the hunt for the next branded drug to take down. But they can’t just go about launching copycats of every drug; it’s against the law to sell a generic version of a drug that’s under patent.

Unless, of course, a company can prove the patent isn’t valid. Unfortunately working the way through the court system takes time, so generic-drug makers sometimes launch early, expecting the patent to be thrown out in court.

For Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) and Sun Pharmaceuticals, that plan didn’t work out too well. They both launched generic versions of Wyeth and Nycomed’s Protonix, but the patent was eventually upheld.

It’s costing the companies big.

Pfizer Inc. (NYSE:PFE)

Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) and Sun are paying $2.15 billion to Pfizer Inc. (NYSE:PFE) and Takeda, which bought Wyeth and Nycomed, respectively. Pfizer Inc. (NYSE:PFE) will receive 64% of the payments, with the rest going to Takeda. Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is on the hook for $1.6 billion, and Sun will pay $550 million.

It’s unlikely that Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) and Sun made that much from selling generic Protonix before the patent expired, but settling was likely the best move for them. When a company infringes on a patent, it’s potentially on the hook for treble damages, which can be as high as three times the amount that the infringement cost the company.

The cost of at-risk launches
To my knowledge, this is the first at-risk launch where a generic-drug maker had to pay for most of the losses incurred by a brand-name drugmaker, although at least one generic-drug maker had to give up some of its profits from an at-risk launch.

In 2006, Apotex made an at-risk launch of its generic version of Plavix — sold by Sanofi SA (ADR) (NYSE:SNY) and Bristol-Myers Squibb Co. (NYSE:BMY) — but the damages were limited to 50% of Apotex’s net sales through an agreement the companies signed before the at-risk launch. Fortunately, Sanofi SA (ADR) (NYSE:SNY) and Bristol-Myers Squibb Co. (NYSE:BMY)were able to get a court injunction to stop the at-risk launch and regain exclusivity for a few more years.

The large payment that Pfizer Inc. (NYSE:PFE) and Takeda received — they were smart enough not to sign an agreement before the at-risk launch — might make Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), Sun, and other generic-drug makers think twice before making at-risk launches, at least for patents where it isn’t blatantly obvious that the patent is invalid.

One to keep your eye on
Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA)
and its partner Novartis AG (ADR) (NYSE:NVS) could benefit greatly from the precedence that Pfizer Inc. (NYSE:PFE) and Takeda have set. The companies launched a generic version of Sanofi’s Lovenox a few years ago that became a blockbuster because there weren’t any competitors other than Sanofi’s branded products. After 18 months, Watson Pharmaceuticals, now Actavis Inc (NYSE:ACT), and Amphastar launched their version of Lovenox, which Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) claims infringes on patents it has on how to make the generic version.

If Momenta can get its patents up held in court, Momenta and Novartis AG (ADR) (NYSE:NVS) could be in for a huge payday to make up for lost sales.

While you can certainly make huge gains in biotech and pharmaceuticals, the best investing approach is to choose great companies and stick with them for the long term.

The article Why the Pfizer-Teva Settlement Affects the Whole Industy originally appeared on

Fool contributor Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Momenta Pharmaceuticals. The Motley Fool owns shares of Momenta Pharmaceuticals.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!