Merck Wins Legal Battle Against Teva

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Includes: MRK, TEVA
by: Zacks Investment Research

Merck (MRK - Analyst Report) received a favorable ruling in a major patent-infringement suit yesterday against the largest generic player, Teva Pharmaceuticals (TEVA - Analyst Report), on its top-selling drug Singulair. Teva was seeking the Food and Drug Administration’s (FDA) approval for selling a generic version of the drug for asthma and allergic rhinitis. The litigation has been continuing since Merck sued Teva in February 2007.

During the second quarter of 2009, Singulair recorded worldwide sales of $1.3 billion, up 16% from the year-ago period. The drug had total sales of $4.3 billion in fiscal 2008, accounting for about 18% of Merck’s total revenue. Defending Singulair’s patent was thus quite crucial for Merck.

We believe this is a major win for Merck as an unfavorable ruling would have hurt its top-line badly. The court not only upheld Merck's patent, but also issued an injunction blocking the approval of Teva's generics till Singulair’s patent expires in August 2012.

Apart from Teva, Roxane Pharmaceuticals and Mylan Inc. (MYL - Analyst Report) have received tentative approval from the FDA to market generic versions of Singulair. The first company that launches the generic version of this multi-billion dollar drug will certainly record windfall gains and get 180 days of sales exclusivity in the U.S. upon patent expiry.

Recently, Teva introduced the generic version of GlaxoSmithKline's (GSK - Analyst Report) billion-dollar anti-migraine drug Imitrex at a much lower price than the original brand.

The ruling on the Singulair patent should protect the drug from generic competition until 2012, after which the drug will witness significant sales erosion due to patent expiry. Earlier, drugs like Zocor and Fosamax saw a huge drop in sales after losing patent protection. We have a Neutral recommendation on Merck.