As Teva Loses Patent Suit to Pfizer, Will It Rethink Strategy?

The largest generic drugmaker and the largest pharmaceutical company fought yet another round in the six year legal battle over ulcer drug Protonix. In this round, Teva Pharmaceutical Industries (TEVA) lost, when a jury found on Friday that the patent for Protonix is valid.

Wyeth, which Pfizer (PFE) acquired last year, licensed the patent for the gastrointestinal diseases drug from Nycomed, but Teva has been selling a generic version of the drug for some time now.

The case dates back to May 2004, when Nycomed and Wyeth sued Teva and Sun Pharmaceuticals Industries over patent infringement. Wyeth's sales of Protonix totaled $1.9 billion in 2007, but after Teva began selling its generic version of the product in December of that year, Wyeth lost most of its sales to Teva, which soon captured an estimated 80% of the market.

Long Case, Big Damages

During several legal battles over the years, Teva stopped then resumed shipping the generic drug. Wyeth also launched a generic version of Protonix. But if Friday's decision holds -- there could still be appeals, and a judge could overturn the jury's verdict -- the patent on the drug expires in January 2011. And assuming it holds, two questions then arise: how much in penalties would Teva have to pay Pfizer, and would the Israeli company reconsider its strategy of at-risk generic drug launches.

Analysts believe Teva will have to pay damages that range from $300 million to $3 billion. Cowen analysts estimate damages in the order of $400 million, but don't believe Teva would be liable for triple damages, according to theflyonthewall. Citigroup analysts estimate damages at $650 million, but predict the damages wouldn't hurt Teva's 20101 profits much.

Stephen Tepper, an analyst at an Israeli brokerage, estimates damages at $1 billion, since Pfizer's lost profit were as much as $1.5 billion, Reuters reports. Tepper tells Globes that there's a slight chance damages could reach $3 billion. And Sanford Bernstein analyst Tim Anderson speculates that Teva is likely to settle for about $1.2 billion, according to Pharmalot.

A Sound Strategy?

Given the outcome of the suit, should Teva change its strategy of at-risk generic drug launches? So far, it seems that the risk was worth taking, since the profits from the risky launches and the six month exclusivity offset any other payments. But should the judge uphold the verdict, not only would it be Teva's first legal defeat of an at-risk launch, as Haaretz reports, but with such high possible damages, the Protonix launch may backfire.

On the heels of Teva's recent other loss -- to Novartis (NVS) over antiviral Famvir, in which Teva will make a one-time undisclosed payment to Novartis as well as ongoing royalty fees on U.S. sales of generic Famvir -- this might trigger a shift, or at least a serious reconsideration of the strategy. And while Pfizer may not gain much from this suit, it could stand to gain from this strategy shift, as would other Big Pharmas, who fear generics, especially at the edge of the dreaded patent cliff.

Still, most analysts rate TEVA shares with a buy and don't consider the event to be life (or rate) changing. Cowen even suggests to take advantage of Monday's price weakness as a buy opportunity.