Pharmaceutical major Dr Reddy's Laboratories (DRL) on Tuesday received a favourable judgment in a litigation pertaining to Suboxone sublingual film in a US court.
DRLhad received the US approval for the generic version of $750 million anti-drug addiction drug Suboxone on June 15, 2018. DRL launched it despite a litigation pending on a patent 305 with London-based Indivior, the innovator of the drug, making it an ‘at-risk’ launch.
This at-risk launch made DRL liable for damages in the future, in case the company lost the litigation in question. To DRL’s dismay, the company had to withdraw the launch of Suboxone in a few days as Indivior approached a US district court.
The US court imposed a temporary injunction which turned into a permanent injunction in July 2018. This permanent injunction stopped DRL from selling Suboxone in the US market until the patent litigation pending with Indivior was resolved or until the Indian pharma company won an appeal overturning the permanent injunction.
DRL filed an appeal in the US Court of Appeals for the Federal Circuit (CAFC) against the preliminary injunction that was imposed on the company. The US CAFC heard arguments in October and on November 20, the court lifted the permanent injunction on DRL.
This verdict by the CAFC paves the way for DRL to restart sales of its generic version of Suboxone in the US. However, the launch will still be ‘at-risk’ as the initial patent litigation between Indivior and DRL is still ongoing and not settled.
Suboxone is expected to be a material opportunity for DRL. An example of the potential sales of this drug was visible in Dr Reddy’s Q1FY19 numbers. DRL in a span of a few days sold $15-20 million worth of Suboxone generic boosting Q1 sales and in fact, offsetting price pressure seen in key drugs such as anti-cancer drug Daocgen generic.
North America, which is DRL’s most important geography and comprises over 40 percent of total sales, grew 6 percent year-on-year (YoY) in Q1FY19. This was significant as the US market grew after atleast eight quarters of decline, where they faced regulatory challenges and price pressure.
The street is now factoring in sales of Suboxone generic to DRL's US numbers for the next two and half years. For the remaining four months of FY19, Dr Reddy's could see an addition of $50-70 million which could scale up to $70-120 million in FY20 and FY21, according to estimates. This would equal to an earnings per share (EPS) addition of around Rs 15 in FY19 and up to Rs 30 in FY20 and FY21.
An important variable to watch out will be incremental competition in the market. Currently, there are five generic companies – Mylan, Teva, Par Pharma, Alvogen and Dr Reddys – are vying for the Suboxone market. The most imminent threat is currently from Mylan.
Mylan had previously reached a settlement with Indivior and received approval for Suboxone from the US Food and Drug Administration (USFDA). While Mylan is yet to launch the drug, the street is assuming it could be soon due to Indivior losing the appeal against Dr Reddys. Par has also settled with Indivior and is waiting for the final approval from the USFDA. If Alvogen gets USFDA approval, it could launch Suboxone 'at-risk'. Teva has applied for an approval for the drug under the 505(b)(2) pathway, which means it has filed for the same drug but with a slight variation.
The question of competition from other drugs arises too. Indivior has launched another anti-drug addiction drug Sublocade in March 2018. Sublocade is a once a month injection against daily dose of Suboxone hence the fear is that traction on Sublocade could reduce the potential of Suboxone.
However, the view is divided on Sublocade. Some are of the belief that one of the reasons for Indivior launching Sublocade was to try to shift around 30-40 percent of market from Suboxone, this was due to the threat that it was going generic.
The other view is that Sublocade is not a threat as it is the second line of treatment, and is prescribed only if Suboxone does not work. And in any case, Suboxone’s lower cost of treatment and easy dosage should deter the shift to Sublocade.
The win by Dr Reddys in the CAFC is also expected to be a positive read through for the company’s pending litigation with Indivior. Both the companies are locked in a litigation on patent 305. The court believes that this particular 305 patent is not too different from patent 514. Dr Reddy's had earlier won a litigation against Indivior on patent 514. Hence the Appeals Court believes DRL is likely to succeed based on the merit of the case.
Brokerage firm Nomura said they find the appeals court opinion ‘comforting’ and it implied a lower risk for Dr Reddy's on the ongoing litigation. Dr Reddy's might also benefit from potential damages. According to Morgan Stanley, Dr Reddys should be eligible to receive damages if the company wins the underlying patent case. The damages are on account of the potential loss of four to five months of sales of Suboxone generic, from mid-June to mid-November.
Following are a few steps to watch out with regards to Suboxone. What will the outcome of the pending patent litigation between Dr Reddy's and Indivior and will it have any impact? Will DRL be paid damages for losing out on potential sales? How much will the company make from Suboxone generic in Q2 and Q3? And Will there be additional competition from Mylan hence diluting the opportunity for Dr Reddy's?
