Teva Shows Cubist That Saving Lives Isn't Good Enough

by Matt Weinschenk

With the recent surge in cases of MRSA (methicillin-resistant staphyloccus aureus), or at least a surge in reporting, one would think it would be good news for Cubist Pharmaceuticals (Nasdaq: CBST).

It may have been, had Cubist not been blindsided by a business-rocking revelation Tuesday.

MRSA is a big problem. It’s a widely prevalent and pervasive bacteria found in hospital facilities, and it’s the most common cause of staph infections. Patients contract these infections from catheters, surgeries or I.V. drug needles.

As we use (some would say over-use) antibiotics to treat infections, only the resistant germs remain. Each successive generation of bacteria is more resilient to treatment and we continually need stronger and stronger drugs to fight them.

They’re called “superbugs” in the press, but that’s not too far from the truth. We are running out of ways to treat these outbreaks. Current estimates put the annual cost of treating MRSA infections at over $10 billion dollars.

And it’s only going to get worse…

That’s why Cubist Pharmaceuticals had really hit a home run with its antibiotic Cubicin – one of the few ways left for hospitals and doctors to fight back.

Introduced in 2003, Cubicin was first prescribed as a treatment for serious skin infections caused by bacteria that invade the body during surgery. However, in 2006, the FDA approved Cubicin to treat bloodstream infections from blood-resistant staph bacteria.

Things looked good for Cubist, until this week.

Teva Pharmaceuticals Files For Generic Cubicin

An Israeli drug company, Teva Pharmaceuticals (Nasdaq: TEVA) has just filed with the FDA to start production of a generic form of Cubicin, even though Cubist’s patents extend to 2016 and 2019.

How so? Teva contends that either Cubist’s patents were not valid in the first place, or Teva can produce a generic without infringing on those patents. Of course, Cubist intends to challenge Teva through litigation, which automatically puts Teva’s plans on hold for 30 months, according to FDA rules.

Even more of a problem, Cubicin is the one and only product that Cubist Pharmaceuticals sells. It’s all indicative of the kinds of intellectual property problems that plague pharmaceutical development.

Cubicin costs about $100 per day (depending on details), while Teva’s generic would be expected to cost much less. Of course, that’s good news for patients worried about medical bills.

But still, if Cubist and other pharmaceuticals can’t protect the profitability of their products, there would be no incentive to spend millions on research and development to create new products and save lives.

It’s one of those ugly problems where both sides are right… and wrong.

Using Price Controls As Alternatives

The alternatives? Price controls. Ugh. Single-payer system. Blech. Publicly-funded research. Yikes.

One of the better “outside the box” suggestions is a prize-based system, wherein the government or well-funded charities take a necessary but unprofitable drug needing ailment, and fund a large cash prize to be delivered to those who make the first successful cure.

By balancing the prize, the cost of R&D, and the revenues that could be made on an affordably-priced drug, it could be the most cost effective means of providing incentives to provide a public good.

But somehow, I don’t see such progressive thinking passing through the U.S. legislative system.

I’d love to see comments on successful reform of the pharmaceutical industry.

In any case, investment in Cubist has now become a binary pass-or-fail proposition. If Cubist wins, shares will surge. If Teva wins, Cubist is likely a penny stock.

But at least we’ve got something to cure an infection.

Comments

[Medical Monkey:]

Yet another victim of Teva, they dive down from the sky to snatch patented medications before their patents expire, having created nothing and contributed nothing new to the betterment of mankind. Allowing company's that dont discover anything to hijack companies that are discovering new breakthroughs like Cubicin should be a crime, it's destroying our ability to create new breakthrough drugs. Let it sell until it's patent expires, not invalidate the patent of their creation through smoke and mirrors saying the instrument that should protect the product is no good. Down with the Drug Pirates like Teva!

Feb 12 12:13 PM

[bbowen7:]

A business person would need more information to digest the article, or the response.
What was the cost and timeline for development?
Where has the government been involved in the process? NIH work; other research?
How much will the Cubicin investors make before this dance plays out? Could they monitize the potential by selling to a major pharma, who might also be better able to protect the patent?
How much will the public save once Teva starts selling it? Even a guess based on history of other drugs?
Pharma is one of our great industries, and there is some risk that the cost pressures of universal healthcare will cause a number of changes in our laws in favor of generics. As an American I resent that; as an investor, I own Teva.

Feb 12 08:39 PM

[pharmavet:]

I think we should at the FDA encourage and reward innovators for unmet medical needs, in this case Cubicin for MRSA, like we do for rare diseases. We give orphan status with associated market exclusivity regardless of patent status to drugs that treat rare diseases in order to encourage development of niche products (although many companies have then abused their pricing power). We could give a similar advantage to drugs developed for unmet medical needs. FYI the latter is one of the key requirements for Fast Track status, which offers regulatory advantages but no commercial advantage to innovators.


On Feb 12 08:39 PM Right in San Francisco wrote:

> A business person would need more information to digest the article,
> or the response.
> What was the cost and timeline for development?
> Where has the government been involved in the process? NIH work;
> other research?
> How much will the Cubicin investors make before this dance plays
> out? Could they monitize the potential by selling to a major pharma,
> who might also be better able to protect the patent?
> How much will the public save once Teva starts selling it? Even a
> guess based on history of other drugs?
> Pharma is one of our great industries, and there is some risk that
> the cost pressures of universal healthcare will cause a number of
> changes in our laws in favor of generics. As an American I resent
> that; as an investor, I own Teva.

Feb 20 02:48 PM

[bowonwing:]

<<How so? Teva contends that either Cubist’s patents were not valid in the first place, or Teva can produce a generic without infringing on those patents. Of course, Cubist intends to challenge Teva through litigation, which automatically puts Teva’s plans on hold for 30 months, according to FDA rules.>>
1. 2/09 plus 30 months= 08/11, Teva's plans put on hold till 08/11;
2. Has any one heard of a company winning with Teva's arguments?
3. I can not wait to see the results of this lawsuit, IMO Teva's going down.

Mar 07 04:44 PM