Last Month’s Supreme Court Rulings Affect the Generic Drugs Industry, Too

Last Month’s Supreme Court Rulings Affect the Generic Drugs Industry, Too

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Last week, amidst closely-watched rulings on affirmative action, the Voting Rights Act, and same-sex marriage, the Supreme Court delivered a victory to the generic drug industry with its decision in Mutual Pharmaceuticals v. Bartlett. In a 5-to-4 ruling, the court decided that patients cannot sue generic drug makers over claims of defective design.

In the majority opinion, Justice Alito wrote that since federal regulation requires generic drugs to have the same active ingredients and labels as FDA-approved brand-name pharmaceuticals, manufacturers cannot alter those aspects of the medication. As a result, the Supreme Court found that generic drug companies cannot be held liable for defects in the drugs’ design. The court’s ruling overturned a New Hampshire jury’s 2010 verdict awarding $21 million to Karen Bartlett who developed severe injuries after taking a generic version of painkiller sulindac.

Brand-Name Drugs vs. Generic Drugs vs. the FTC

The decision in Mutual Pharmaceuticals v. Barlett was the second generic drug-related ruling issued by the Supreme Court last month, following Federal Trade Commission v. Actavis, Inc. In FTC v. Actavis, the court stated in a 5-to-3 decision that reverse payments settlements between patent holders and generic drug makers in Hatch-Waxman cases are subject to antitrust scrutiny. Enacted in 1984, the Hatch-Waxman Act, formally known as the Drug Price Competition and Patent Term Restoration Act, allows generic companies to challenge the patents of brand-name drug manufacturers in order to gain access to the market. In some situations, brand name companies have settled these challenges with payments to generic competitors with the stipulation that the latter will delay the release of their drugs.

The case at the center of FTC v. Actavis involves Solvay Pharmaceuticals (SOLB: OTC), manufacturer of AndroGel, and generic drug manufacturers Actavis (ACT), formerly Watson Pharmaceuticals, and Paddock Laboratories, which is owned by Perrigo (PRGO). AndroGel was approved by the FDA in 2000, and Solvay received a patent for the medication in 2003. That same year Actavis and Paddock filed drug applications with the FDA for their generic versions of AndroGel, challenging the validity of the patent. In turn, Solvay sued both Actavis and Paddock for patent infringement, only to settle with both companies in 2006.

As part of the settlement, Actavis and Paddock agreed to delay their market entry until August 31, 2015, which is 65 months prior to Solvay’s patent expiration. In the event that another company released a generic drug before that date, both companies would then be able to sell their versions. Actavis also agreed to promote Androgel to urologists. Solvay also agreed to pay $19-$30 million annually for nine years to Actavis and $12 million over six years to Paddock. The FTC argued that Solvay, fearful of having its patent invalidated, had unlawfully protected its patent monopoly through the settlement.

Health Affairs writes that in addition to being a victory for the FTC, the Supreme Court’s ruling in FTC v. Actavis will likely to lead generic drugs entering the market in a “timely fashion”. Considering that patents on $40 billion of brand-name drugs will expire by the end of 2016, it seems that the blocking of anti-competitive settlements will enable more companies to enter an increasingly open market. However, the Generic Pharmaceutical Association (GPhA) argues that generic drugs and consumers benefit from settlements in patent challenges. In its January 17th statement, the GPhA cited a 2011 study from the Royal Bank of Canada that found generic drugs entered the market in 76% of cases with settlements versus 48% in cases with completed litigation.

Investing Ideas

It’s clear how the generic drug industry benefits from the Supreme Court’s ruling in Mutual Pharmaceuticals v. Bartlett, but the impact of Federal Trade Commission v. Actavis is less apparent. How do you expect the following generic drug manufacturers to fare in the wake of these rulings? Use this list as a starting point for your own analysis.

For an interactive version of this chart, click on the image below. Average analyst ratings sourced from Zacks Investment Research.

1. Supernus Pharmaceuticals, Inc. (SUPN, Earnings, Analysts, Financials): Focuses on developing and commercializing products for the treatment of central nervous system diseases.

Market cap at $198.53M, most recent closing price at $6.40.

On June 10th, Supernus Pharmaceuticals announced that it had received a tentative approval letter from the FDA for its epilepsy medication Trokendi XR. The drug is a generic version of brand-name Topamax, which lost data exclusivity on June 22nd.
 

2. Hi Tech Pharmacal Co. Inc. (HITK, Earnings, Analysts, Financials): Develops, manufactures, markets, and sells generic, prescription, over-the-counter (OTC), and nutritional products in liquid and semisolid dosage forms in the United States.

Market cap at $445.18M, most recent closing price at $33.99.

At the end of April, the company's ECR Pharmaceuticals division re-launched its insomnia drug, Zolpimist Oral Spray, and dermatitis and skin disorder medication, DexPak Taperpaks.
 

3. Sagent Pharmaceuticals, Inc. (SGNT, Earnings, Analysts, Financials): Engages in developing, manufacturing, sourcing, and marketing pharmaceutical products, principally injectable-based generic equivalents primarily in the United States.

Market cap at $590.27M, most recent closing price at $21.37.

Last month, Sagent Pharmaceuticals issued a voluntary recall of all lots of Vecuronium Bromide, an injectable paralyzing agent used in surgery.
 

4. Avanir Pharmaceuticals (AVNR, Earnings, Analysts, Financials): Engages in acquiring, developing, and commercializing novel therapeutic products for the treatment of central nervous system disorders primarily in the United States.

Market cap at $640.2M, most recent closing price at $4.49.

Avanir filed a patent infringement lawsuit against Sandoz – Novartis's generic branch – on May 31st to block the latter from marketing a generic version of Avanir's Nuedexta drug for uncontrollable emotions.
 

5. Momenta Pharmaceuticals Inc. (MNTA, Earnings, Analysts, Financials): Specializes in the characterization and process engineering of complex molecules.

Market cap at $762.56M, most recent closing price at $14.93.

Last Monday, the Supreme Court decided against hearing an appeal of Momenta's 2011 patent infringement case with Sandoz against Actavis Inc. and Amphastar Pharmaceuticals in regards to Momenta's generic blood-thinning drug, Lovenox.

 

6. Akorn, Inc. (AKRX, Earnings, Analysts, Financials): Engages in the manufacture and marketing of diagnostic and therapeutic pharmaceutical products, hospital drugs, and injectable pharmaceuticals in the United States and internationally.

Market cap at $1.3B, most recent closing price at $13.74.

The drug manufacturer recently launched Akten, an optical anesthesia, on April 29th.

 

7. Perrigo Co. (PRGO, Earnings, Analysts, Financials): Develops, manufactures, and distributes over-the-counter (OTC) and generic prescription (Rx) pharmaceuticals, nutritional products, infant formulas, active pharmaceutical ingredients (API), and pharmaceutical and medical diagnostic products worldwide.

Market cap at $11.37B, most recent closing price at $121.94.

On May 29th, Perrigo Company released a statement announcing its Abbreviated New Drug Application filing with the FDA for its generic version of Axiron Topical Solution, a testosterone medication. That same day, the company announced that its generic version of Sanctura XR had received final approval.
 

8. Mylan, Inc. (MYL, Earnings, Analysts, Financials): Engages in the development, manufacture, marketing, licensing, and distribution of generic and branded generic pharmaceuticals, specialty pharmaceuticals, and active pharmaceutical ingredients (APIs) worldwide.

Market cap at $12.2B, most recent closing price at $30.86.

Mylan announced the launch of its birth-control Norethindrone Tablets on June 27th. The tablets are a generic version of Janssen Pharmaceuticals, Inc.’s Micronor Tablets.

 

9. Actavis, Inc. (ACT, Earnings, Analysts, Financials): Engages in developing, manufacturing, marketing, selling, and distributing generic, branded generic, brand, biosimilar, and over-the-counter pharmaceutical products worldwide.

Market cap at $16.43B, most recent closing price at $125.44.

On June 7th, Actavis announced that it had filed an Abbreviated New Drug Application with the FDA for approval to market its Propofol injection sedative and anesthetic, which is a generic version of Fresenius Kabi’s Diprivan.
 

 

(List compiled by Mary-Lynn Cesar. All data sourced from Finviz.)

 

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