Examining Teva and Bayer's Generics Battle

Includes: BYERF, TEVA
by: EP Vantage

Teva’s (NYSE:TEVA) at-risk launch of generic versions of the contraceptive Yaz is set to send the Israeli company to the US courts as Bayer seeks to preserve sales of its best-selling franchise. Whilst Teva is accustomed to spending time in the courts, what surprised some industry observers is that it had already signed a deal with the German company agreeing to hold off launch until July 1, 2011.

But Teva has its own sales to think of. A 30-month stay against Watson Pharmaceuticals’ (WPI) own application for its Yaz copycat (drospirenone and ethinyl estradiol) expired in May, and an at-risk launch was necessary for Teva to reach the market first with a low-cost generic. The early launch, not expected by some analysts, could see consensus sales forecasts coming down by €200m ($244.5m) in 2010 and 2011, according to analysts from JP Morgan Cazenove.

The original patent settlement deal with Bayer was signed with Barr Pharmaceuticals (BRL), which Teva inherited with its 2008 buyout of the US generics firm. A composition of matter patent for Yaz has been invalidated, though other patents related to the drug still exist in the Orange Book. The JP Morgan analysts note that the patent settlement deal apparently did not preclude an earlier launch.

Franchise at risk

The world’s best-selling hormonal contraceptive products, generating $1.73bn in 2009, the Yaz franchise is also forecast to be Bayer’s biggest revenue generator until 2011, when it will be eclipsed by MS treatment Barnetil, according to EvaluatePharma data. Unlike many drugs facing generic competition, the erosion in Yaz’s sales is not forecast to be steep – in 2016 it will still have blockbuster status with forecast sales of $1.02bn, representing a 43% fall from peak sales in 2009.

Whilst that is a significant loss, it is nowhere near the 90% that can often be seen in other drugs losing patent protection, indicative of how Bayer has been successful in protecting the Yaz franchise. It has done so with a variety of formulations of the estrogen content or the number of active days in the cycle to counteract the side effects of hormonal therapy.

Bayer’s ability to guard against generic erosion is running out, however. Whilst its Yaz Plus formulation of hormonal contraceptive plus folic acid, aimed at women planning on becoming pregnant and discontinuing their contraception use, faces a PDUFA date this month, analysts from Jefferies International believe it will only provide a modest line extension.

It has also filed a new drug called Natazia, which was approved just last month in the US, and is already marketed as Qlaira in Europe. However, that product is still forecast to achieve only a fraction of Yaz’s 2016 sales at just $113m.

More trouble ahead

Meanwhile, beyond the generics battle there are other lingering legal concerns related to Yaz – specifically, an estimated 1,750 US legal cases related to thrombotic events in women who have taken the drug.

As such, earlier-than-expected generic entry in the US is a blow to Bayer. From $727m in US sales in 2010, Yaz will drop to $365m in 2016, mirroring trends in other off-patent drugs that lose sales faster in the US market than in the rest of the world.

Teva’s incursion puts more pressure on a franchise already under a grave amount of pressure. Even if Bayer prevails in blocking Teva sales for a year, much of the damage has already been done.

Disclosure: No positions