Teva's Win-Win Situation

Includes: BMY, SNY, TEVA
by: Shlomo Greenberg

What is the significance for Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA) of the legal battle being conducted by Bristol-Myers Squibb (NYSE: BMY) and Sanofi-Aventis (NYSE: SNY) to stop Canadian generic drug company Apotex selling its version of their blockbuster blood thinner Plavix? Plavix is the world's second-biggest selling drug, with sales in 2005 to the tune of $3.3 billion in the US and $5.9 billion worldwide.

Bristol-Myers Squibb and Sanofi-Aventis want the New York District Court to order Apotex to recall generic Plavix, which it began shipping on August 8, on the grounds that it infringes a US patent for clopidogrel bisulfate that expires in 2011. They argue that Apotex should not be allowed to sell its generic product until a ruling on the patent claim.

Bristol-Myers Squibb and Sanofi-Aventis signed an agreement with Apotex which would have delayed the introduction of generic Plavix in return for compensation. The agreement was ruled invalid, while Apotex went on to win its challenge to Plavix's patent protection. Bristol-Myers Squibb and Sanofi-Aventis say part of the agreement survives, and on this basis they seek the recall.

Apparently Apotex's move to win court approval for marketing generic Plavix alarmed Bristol-Myers Squibb and Sanofi-Aventis, and so they sought an agreement. For its part, Apotex sought to cover itself in case its patent challenge failed.

Why did Bristol-Myers Squibb and Sanofi-Aventis behave like this? Goodness knows. You would have to be stupid to believe that the US authorities would condone an agreement of the kind they signed with Apotex, one that harms the generic drug industry immensely. Not only did the authorities not approve the agreement, they went for Bristol-Myers Squibb, including a raid on its offices. The US Department of Justice also began to sniff around. Once the agreement was canceled, Apotex felt entitled to sell its generic product, and as far as I can see, it has left the managements of Bristol-Myers Squibb and Sanofi-Aventis with a problem. The current court hearing began on August 18, and we'll see how it turns out.

So what's the connection to Teva? It's quite simple. You don’t have to be a genius of an analyst to realize the scale of the markets at stake and the kind of war being fought. In my view, these wars by the pharmaceuticals giants only highlight the importance of the generic industry.

What happened between Teva and Merck (NYSE: MRK) over Zocor, and Bristol-Myers Squibb and Sanofi-Aventis's fight against Apotex, are only the beginning, because at stake is a market worth hundreds of billions of dollars that is changing hands. The competition over every leading ethical drug will become fiercer, and Teva, with its strong position in the generic market, has nothing to fear.

This case, and that of Zocor, in which the results on the ground can be seen in Teva's financials, show conclusively that the battle of the pharma giants actually helps Teva. Not only does the legal furor highlight the price gap between ethical and generic products, it has also become clear that neither the public nor the legislature in the US will let the big pharma companies invade the generic field.

That being so, the only choice left for a company like Merck or Pfizer (NYSE: PFE) is not to cut the prices of their ethical drugs, but to buy a company like Teva.

Incidentally, the word going round Wall Street is that Bristol-Myers Squibb is up for sale, and, according to yesterday's "Wall Street Journal", Swiss company Novartis (NYSE: NVS), Teva's main rival, GlaxoSmithKline of the UK, and Sanofi-Aventis, are interested in acquiring it. Why shouldn't Teva join them?

TEVA 1-yr chart:

Published originally by Globes [online], Israel business news -
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.

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