Threat of Generic Copycat Comes Back to Nip at Teva .

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    Teva Pharmaceutical Industries Ltd., the generic-drug giant that made a business out of challenging the valuable patents of Big Pharma, is getting a taste of its own tactics.

    The Israeli company has grown into one of the world's largest drug makers by selling generic copies of costlier brand-name medicines. In the U.S., Teva generics account for one in five prescriptions, the company says. But Teva also has a brand-name drug business. The main product is Copaxone, a treatment for multiple sclerosis generating more than $3 billion of Teva's $16.1 billion total sales last year.

    Now it is Copaxone that is facing the threat of generic competition. Rivals Mylan Inc. and Momenta Pharmaceuticals Inc. have each asked the U.S. Food and Drug Administration to sell copies of Copaxone ahead of the expiration of multiple key patents in 2014 and 2015. In order to sell their versions sooner, the rivals are challenging the validity of the patents—a strategy that Teva helped pioneer.

    Teva, in response, has sued its challengers for patent infringement, taking a page from Big Pharma's playbook. The company also asked the FDA to require full-scale clinical trials of the proposed copies—a step not typically necessary for generics, but one that branded drug makers have used to protect certain drugs. The FDA so far has denied Teva's requests for the studies, but one part of the litigation is ongoing in a New York federal court and another is scheduled to start Sept. 7.

    "They're acting like a pharmaceutical company. They're defending their patents like a Merck or Pfizer would. That's the irony here," said Richard Shea, Momenta's chief financial officer.

    Teva says its patents are valid and were obtained according to patent office procedures. There is "nothing wrong defending your patents, and when we are the generic challenger, we don't complain about the brand companies defending their patents," said David Stark, Teva's general counsel in the Americas.

    The dispute underscores how business pressures are blurring the lines between brand-name and generic drug makers and driving leading companies from each industry to pursue the strategies of the other. Now, Novartis AG's Sandoz, with $8.5 billion in 2010 sales, is the No. 2 seller of generic medicines in the world after Teva. Last year, French drug giant Sanofi SA had $2.2 billion in generic sales and established a joint venture to sell generics in Japan.

    For Big Pharma, the push into generics is partly to find growth in emerging markets such as Brazil, India and Russia, said Frederic Brunner, CEO of the consulting firm a-connect and a former Novartis executive.

    Most consumers in these markets can't afford Western brand-name medicines, so Western companies sell "branded generics" that are affordable but still command higher prices than no-name drugs because the company name connotes quality.

    Big drug makers are also leveraging their expertise in complex medicines called biologics to develop copies of such therapies. Both Pfizer Inc. and Merck & Co. have said they're working on biologic knockoffs.

    For the generic companies, branded drugs could help counter increasing competition from rivals in India that have squeezed the prices and margins on generic drugs even further.

    "What used to be a very lucrative and semi-oligopolic business actually got super-competitive and fierce," said Mr. Brunner.

    In the past five years, India-based generic companies such as Aurobindo Pharma Ltd., Dr. Reddy's Laboratories Ltd., Lupin Ltd. and Ranbaxy Laboratories Ltd. have increased their market share to 21% from 4%, while the top 10 generic drug makers have lost 10% of their share, according to Sanford C. Bernstein analyst Ronny Gal.

    Branded products enjoy a monopoly for the duration of their patent protection and command much higher prices than generics—as much as 90% higher, according to IMS Health.

    Teva, in addition to developing its own branded drug such as Copaxone, agreed in May to pay $6.8 billion for Cephalon Inc., which sells sleep-disorder remedy Provigil and the Treanda leukemia treatment.

    Teva will "enjoy both the high growth rates of generics and the high profitability of brands," said Teva Chief Executive Shlomo Yanai said in an interview discussing the Cephalon deal. After the takeover, about 40% of Teva's revenue will come from brand-name medicines, up from 30%, he said. Teva's operating margins on Copaxone are about 60%, estimates Shibani Malhotra, an RBC Capital Markets analyst.

    Teva, founded as a drug wholesale business delivering medicines by camel and donkey, began making copies of drugs for Israelis after World War II when the young country restricted imports. The business got a big boost after the U.S. in 1984 authorized sales of generic drugs. Use of unbranded drugs has grown to more than 70% of U.S. prescriptions, according to IMS Health.

    Today, Teva is the 13th-biggest drug maker by sales, according to EvaluatePharma, after Bristol-Myers Squibb Co. and ahead of Amgen Inc.

    The Israeli company was among the first to take advantage of the U.S. changes authorizing generic drugs. Just as its rivals did with Copaxone,Teva sought to be the first to sell copies of medicines and capture the bulk of a drug's early generic sales. Before rivals adopted the approach, Teva was the first to file a patent challenge more than half the time, according to Bernstein Research. Among the generics it has launched were antidepressant Effexor and heartburn remedy Prevacid.

    The branded-drug business is still largely foreign to generic drug makers, however, and poses challenges—the higher risks of developing new compounds, the need to persuade doctors and patients to buy them, and the tricky proposition of responding to patent challenges from rivals.

    In defending Copaxone, Teva has been employing the sort of tactic—contending that a drug is too complex to simply copy—that the company is actually arguing against in another case in its role as a generic maker.

    Typically generic-drug makers need show only that their copies are chemically the same as the branded drugs to win approval, but Teva has argued that clinical trials are needed to establish that the Copaxone generics are truly equivalent. "How are you going to guarantee to the patient the product is going to work?" asked Mike Nicholas, who heads regulatory affairs for Teva's branded products in the U.S. "That's a question you can't answer" without a clinical trial.

    But in a separate case, Teva is seeking to sell a generic version of Sanofi's Lovenox blood thinner. Sanofi sued Teva for patent infringement and also argued to the FDA that Lovenox was too complex to copy without full clinical trials, both positions that Teva has disputed. Teva won its court case, and the company says it is waiting for an FDA decision on its application for a generic Lovenox. .

    Teva said the agency may yet ask for the clinical trials in the Copaxone case. The FDA doesn't comment on such cases, an agency spokeswoman said.

    Sanofi declined to comment.