Novartis' Patent Denial

| About: Novartis AG (NVS)

Earlier today, the Supreme Court of India denied the patent of Novartis' (NYSE:NVS) billion dollar drug Glivec citing the following:

  • Patent denied despite global recognition of Glivec as a life-saving, breakthrough drug for certain forms of cancer, with patents granted in nearly 40 countries
  • Novartis has never been granted an original patent for Glivec in India
  • More than 9 out of 10 patients currently taking Glivec in India will continue to receive drug free of charge through Novartis Oncology Access programs
  • Patents are the foundation of innovative drug discovery and essential to advancing medical science and treatment of patients

This comes as a major setback and warning to other drug companies looking to operate in India as this ruling demonstrates India's backing of generic drugs and availability to those in need. While this has to be seen as a win for the Indian public, Novartis Vice Chairman Ranjit stressed the setback patients could face because of less future innovations:

"Novartis has never been granted an original patent for Glivec in India. We strongly believe that original innovation should be recognized in patents to encourage investment in medical innovation especially for unmet medical needs," said Ranjit Shahani, Vice Chairman and Managing Director, Novartis India Limited. "We brought this case because we strongly believe patents safeguard innovation and encourage medical progress, particularly for unmet medical needs. This ruling is a setback for patients that will hinder medical progress for diseases without effective treatment options."

Per Novartis' annual financials, Gleevec/Blivec had $4.675 billion in sales worldwide last year with $2.977 coming from outside the U.S.

Also losing patents in India recently were:

Pfizer's (NYSE:PFE) cancer drug Sutent and Roche's (OTCQX:RHHBY) hepatitis C treatment Pegasys lost their patented status in India last year, decisions the companies are fighting to have reversed.

Lost future incomes from India represent a large setback for long-term holders of Novartis as future growth is largely dependent on emerging markets. Last year, double-digit growth in China and India resulted in $7.6 billion in emerging market sales (up 6%). Another indication of the importance from these markets is found in the performance of Novartis' top 20 Pharmaceutical products. In 2012, U.S. sales declined 1% to $32.153 billion for the top 20 drugs while non-U.S. sales were up 4% to $21.761. The biggest obstacle emerging from these growth markets is competition from the sale of generic drugs. Per the annual report, generic drug sales also impacted negatively sales in Europe, Japan, Latin America and Canada.

Novartis AG has a market cap of $192.79 billion and currently trades for $70.98 a share. The stock is up 16.83% YTD and trades at its 52 week high. Analysts currently have a mean price target of $70.00 and a median price target of $71 on the shares. Novartis has a dividend yield of 3.55% and P/B of 2.5 (below the industry averages 3.1).

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