June 12 (Bloomberg) -- Teva Pharmaceutical Industries Ltd. and Sun Pharmaceutical Industries Ltd. will pay $2.15 billion to Pfizer Inc. and a partner to settle litigation over unauthorized sales of the heartburn drug Protonix.
Pfizer, the world’s largest drugmaker, will receive 64 percent of the settlement while partner Takeda Pharmaceutical Co. will get the rest, New York-based Pfizer said in a statement today. Teva will pay $1.6 billion, including $800 million this year and the rest in 2014, according to a company statement. Sun said it will pay $550 million.
“We are pleased with today’s settlement, which recognizes the validity and value of the innovation that led to Protonix,” Amy Schulman, Pfizer’s general counsel, said in the statement.
Teva and Sun began selling generic versions in 2008 only to lose a challenge to a patent on the medicine two years later. Pfizer’s Wyeth unit was seeking $2.7 billion from Teva and Sun, saying it was entitled to a share of the revenue from those generic versions, as well as compensation for sales it lost to the copycat.
A trial over Pfizer’s claims began June 3 in federal court in Newark, New Jersey.
“We are pleased to put this matter behind us as we continue to focus on delivering safe and affordable medicines to patients around the world,” Richard Egosi, Teva’s chief legal officer, said in the statement.
$930 Million Charge
Teva said it will take a $930 million charge in the second quarter beyond the $670 million provision recorded in its 2012 financial statements. The company said it may have as much as $560 million of net insurance coverage for the settlement.
“The settlement size had been largely expected by the market, so from an investor perspective the event is not so significant,” said Ori Hershkovitz, a partner at Sphera Funds Management Ltd., a Tel Aviv-based health-care hedge fund. It doesn’t hold Teva shares.
The case marked a rare instance in which a brand-drug company was seeking compensation for the early release of a copy of its medicines. Typically, generic-drug makers wait until the patents expire or they get a court ruling that clears the way. Teva has undertaken more than a dozen such at-risk market entries, betting that it would eventually win the case. It usually did.
Protonix sales reached $1.9 billion in 2007, and then fell 58 percent to $806 million in 2008, after Teva, based in Petach Tikva, Israel, began selling its generic version. Mumbai-based Sun entered the market in January 2008, a month after Teva. Sun was ordered to stop in 2010. The patent term ended in January 2011, and generic versions are widely available.
At the trial in Newark, Pfizer attorney William Lee told jurors that Teva and Sun were unwilling to wait until the patent expired on Protonix before they began selling their cheaper copies.
“They decided to take a risk,” said Lee in his opening statement on June 4. By launching generic sales, the market for branded versions of the drug was “destroyed,” he said.
“Teva and Sun in 2007 had a choice,” said Lee of WilmerHale LLP in Boston. “They couldn’t wait until January 2011 and launch. If they had, we wouldn’t be here today.”
The generic sales by Teva and Sun “put billions of dollars in their pockets as a result of the patent infringement,” Lee said.
It took “20 years to invent this product, bring it to market in the U.S., to have it be a success for the patients,” Lee said. “It took about a month to destroy that investment.”
The risk didn’t pay off, Lee said, because “the decision was that all of those millions of tablets, all of those billions in sales are now admitted by them to be infringement.”
Not all generic sales went to Teva and Sun. Wyeth began selling Protonix under its chemical name to undercut Teva and Sun sales. Sun argued that, because of that authorized generic, Pfizer and a Takeda unit were entitled to no more than $106 million in compensation, according to a court filing.
“This settlement now culminates the ongoing litigation,” Sun said in a statement.
Protonix, whose chemical name is pantoprazole sodium, is a proton pump inhibitor that reduces the secretion of stomach acids and is used to treat the effects of gastroesophageal reflux disease. Pfizer acquired Protonix in 2009 as part of its $68 billion purchase of Wyeth.
Sun and Teva conceded in court that they infringed the patent. In April 2010, a federal jury in Newark rejected arguments by the companies that the patent covered an obvious variation of earlier patented compounds in the same family as Protonix.
Teva’s American depositary receipts fell 1 percent to $39.42 at 12:09 p.m. in New York trading. Each ADR is equal to one ordinary share. The drugmaker gained 2.6 percent in the 12 months before today. Pfizer rose 0.5 percent to $28.57.
The case is Altana Pharma AG v. Teva Pharmaceuticals USA Inc., 04-cv-02355, U.S. District Court, District of New Jersey (Newark).
To contact the reporters on this story: Sophia Pearson in Philadelphia at email@example.com; David Voreacos in federal court in Newark, New Jersey, at +1- firstname.lastname@example.org; Susan Decker in Washington at Sdecker1@bloomberg.net.