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Bausch Health Cos. Inc. shares slid more than 5% Tuesday, after the company said it is filing a lawsuit against Novartis AG unit Sandoz for infringing patents that protect the company’s blockbuster drug Xifaxan 550 mg tablets, a treatment for irritable bowel syndrome.
Bausch BHC, -7.55%, the former Valeant, said Sandoz NVS, -0.91% infringed 14 patents when it filed an Abbreviated New Drug Application (ANDA) for the tablets. Xifaxan is protected by 22 patents covering the composition and use of the drug, in the U.S. Food and Drug Administration’s Approved Drug Products with Therapeutic Equivalance Evaluations, also known as the Orange Book.
“Bausch Health remains confident in the strength of the XIFAXAN patents and will continue to vigorously defend its intellectual property,” the company said in a statement.
Evercore analyst Umer Raffat said the move is a “significant development,” noting that Xifaxan has annualized sales of about $1.3 billion “and growing, and its stand-alone profitability is a substantial part of overall cash flows for Bausch.”
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Until lately, investors were confident that Xifaxan was well protected as the only potential generic competition could come from Teva Inc. TEVA, +0.07% which had agreed to wait until 2028. Other possible generic makers were expected to be deterred by the FDA’s strict guidance on bioequivalence, which implied a clinical trial would be required to establish equivalence, said the analyst.
“My sense is that this ANDA is likely not FDA approvable … and if it is, it likely means that polymorphs were identical to Xifaxan – and if that’s the case, Bausch can likely win on direct polymorph infringement,” said Raffat. Polymorphs are substances that are chemically identical but have more than one crystal form. They are important in the pharmaceutical industry because many active pharmaceutical ingredients get FDA approval for just one polymorph.
Raffat said Sandoz ran a trial of Xifaxan 200 mg, but not for the 550 mg version, which accounts for most of its sales. That trial ended in May of 2017 and the company would need to have filed for that dosage at the time. “The fact that the ANDA got filed now is interesting,” he wrote.
In its second-quarter earnings released in August, Bausch said Xifaxan revenue rose 21% from the year-earlier period, boosting revenue at the company’s Salix segment to $509 million from $441 million in the second quarter of 2018, the first time the segment had quarterly sales that exceeded $500 million. Salix accounted for about 24% of the company’s total second-quarter revenue of $2.152 billion, which was up from $2.128 billion a year ago.
See: Bausch Health’s stock surges as revenue rises in line with expectations, but outlook raised
U.S.-listed shares of Novartis were down 1.3%.
Bausch shares have gained 12% in 2019, while the S&P 500 SPX, -0.81% has gained 18% and the Dow Jones Industrial Average DJIA, -0.88% has gained 15%.
See: Shares of Bausch up 4% after company gives rosier full-year guidance