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The share price of FTSE 100 member, AstraZenca, plunged 82.50 points, a decline of 1.81%, to 4,468.50 today, following announcement of an adverse ruling by the U.S. District Court of New Jersey. The court ruled, in a continuation of a case that has been on the its docket since 2013, that AstraZeneca’s patent number 6,598,603 is invalid and that no competitor is infringing on patent number 7,524,834. So, before investors start hyperventilating, let’s understand what this means for AZN.
It’s About Pulmicort Repsules
“Pulmicort is a long-term maintenance medicine used to control and prevent asthma symptoms in children ages 12 months to eight years.”
The court ruling confirmed its decision on 1 April 2013, following an appeal by AstraZeneca to the U.S. Federal Court of Appeals. That court had reversed the original ruling and remanded the case back to the District Court of Appeals.
What is boils down to is that the door is now open for competitors to sell generic versions of Pulmicort in the U.S. in competition with AZN. The obvious downside is that AstraZeneca’s U.S. sales of Pulmicort might be expected to decline as soon as their is an acceptable generic available. Now, here comes the tricky part. There has been an acceptable generic available for some time now, but it was marketed by Teva Pharmaceuticals (NYSE:TEVA) under an exclusive agreement with AstraZeneca that goes back to 2009. Teva is the world’s largest manufacturer of generic drugs. Compounding that problem is that Actavis (NYSE:ACT) immediately announced today that it has launched its own generic version of Pulmicort.
How Bad Is It?
This is really the question that AZN investors need to ask. It is apparent that Actavis sees a $1.1 billion gold mine of U.S. pharmaceutical sales that they are now free to mine. In its annual report released in March 2014, AZN listed Pulmicort as one of its top 10 leading medicines with total sales of $867 million in the previous year, ranking, by my calculations, at seventh place with a year-on-year growth of only 1.0%. However, U.S. sales, the only sales affected by the court’s decision, were $233 million, less than 0.04% of the company’s total sales. About one-half of that $233 million came from the fees from the sales of Teva’s generic version.
So, for AstraZeneca shareholders it comes down to this:
- AZN’s press release on the matter said, “This decision will not impact AstraZeneca’s guidance for 2015, which is that sales revenue is expected to decline by mid single-digit percent at constant exchange rates and core EPS is expected to increase by low single-digit percent at CER.”
- AZN’s share price is 4,468.50, 10.1% higher than one-year ago, 15 February 2014, when it was closed at 4,055.00
There is a whole lot more to AstraZeneca than this story. My advice to the company’s shareholders is to breathe easy.
