Sector Snap: Generic competition and biotech drugs

NEW YORK (AP) A group of Cowen and Co. analysts said Friday that record numbers of major drugs are facing patent challenges that could leave their makers vulnerable to greater competition in the next few years.

The analysts said Endo Pharmaceuticals Holdings Inc., Cubist Pharmaceuticals Inc., and Teva Pharmaceutical Industries Ltd. are particularly vulnerable to patent challenges because each company gets a large chunk of its profits from one key drug. For Endo, that is the Lidoderm pain patch, and for Cubist, it's the antibiotic Cubicin, which brings in almost all of its sales. Teva, which is the world's largest generic drug company, is counting on strong sales of its multiple sclerosis drug Copaxone.

The Cowen analysts said 67 drugs that bring in annual U.S. sales of at least $100 million per year will lose patent protection or marketing exclusivity through 2016, and they said the patents are being challenged on "at least 80 percent" of those drugs. Combined, those drugs had sales of $75 billion in 2011, or almost a third of all U.S. retail drug spending.

Generic drugmakers like Teva often challenge the patents on brand-name drugs as part of an effort to start selling their own less-expensive version. If a court rules that the patents are not valid, they can start selling their generic version. Other times, the generic drugmaker and the maker of the original drug will reach a settlement that keeps the generic off the market for a time, but allows the generic drug company to start selling its product before the patents on the original drug expire.

Cowen said patent challenges are increasing because companies are filing for multiple patents on each new drug, and because the first generic drugmaker to file for approval of a particular drug is often rewarded with several months of marketing exclusivity periods where other generics are blocked from the market.

The companies have responded to the threat of generic competition by broadening their businesses. Endo gets almost half its sales and about 60 percent of its profit from Lidoderm, and the patents supporting the drug are scheduled to expire in 2015. Over the last two years Endo has spent more than $4 billion on acquisitions, saying it wants to become a health care company and not just a drugmaker. On Thursday the Chadds Ford, Pa.-based company announced plans to change its name to Endo Health Solutions.

Cubist of Lexington, Mass., gets almost all its revenue from the antibiotic Cubicin, which booked $735.5 million in sales in 2011. Cubist said in February that Hospira Inc. is challenging the patents supporting Cubicin. The companies are now litigating that dispute. Under the terms of a previous settlement, Teva can start selling a generic version of Cubicin in 2017 or 2018.

Teva has been expanding its brand-name drug business, and in October it paid $6.8 billion to buy Cephalon Inc., which makes cancer drugs and the sleep disorder drug Provigil. The analysts said the Israel-based company gets about 35 percent of its profit from sales of Copaxone, the biggest-selling multiple sclerosis medication in the world.

Several companies including Mylan Inc. and Novartis AG are challenging the patents on Copaxone. Teva says Copaxone has patent protection through May 2014.

Shares of Teva rose 7 cents to $45.34 in afternoon trading, while Endo Pharmaceuticals shares lost 46 cents to $37.01 and Cubist stock fell 60 cents to $42.09.

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Sector Snap: Generic competition and biotech drugs