(AZN) US Court Rejects AstraZeneca’s Case

Recently, AstraZeneca (AZN) announced that US District Court for the District of Columbia has dismissed the lawsuit filed by the company against the US Food and Drug Administration (FDA).

AstraZeneca had taken legal action against the FDA, challenging the agency’s decision to reject AstraZeneca’s Citizen Petitions.

The Citizen Petitions were filed by the company for Seroquel (quetiapine fumarate) and Seroquel XR. The Citizen Petitions were filed to bar the FDA from approving any generic versions of the drug that do not include warnings related to hyperglycemia and suicidality in its label. With this move, AstraZeneca was looking to delay the launch of generic versions of Seroquel considering the company has marketing exclusivity for the data associated with the hyperglycemia warning till December 2, 2012.

Meanwhile, the UK High Court has ruled against the formulation patent protecting Seroquel XR and rendered it invalid. Seroquel XR is marketed as Seroquel XL in the UK.

Teva UK Limited and Teva Pharmaceuticals Limited (TEVA) had challenged AstraZeneca’s Seroquel XR patent in December 2010. Similar challenges were made by Accord Healthcare Limited, Intas Pharmaceuticals Limited, Hexal AG and Sandoz Ltd. in March and April 2011. We note that the patent covering the formulation of Seroquel XR expires in 2017 in both the EU and the US.

In contrast to this decision, on March 7, 2012, the District Court in The Hague, Netherlands, ruled in favor of AstraZeneca and found Seroquel XR’s formulation patent to be valid. The company is engaged in several other lawsuits related to Seroquel XR’s patent.

Mylan Inc. (MYL), Dr Reddy’s Laboratories (RDY) and Teva have launched their generic version of Seroquel in late March. The Seroquel franchise generated sales of $5.8 billion in 2011. The loss of patent protection and entry of generic drugs in the market will hit AstraZeneca’s topline.

Neutral on AstraZeneca

We currently have a Neutral recommendation on AstraZeneca. The stock carries a Zacks #3 Rank (Hold rating) in the short run. Even though we are encouraged by the company’s focus on the high-potential emerging markets, we remain concerned about the generic competition faced by its key products. In 2011, the company lost revenues worth almost $2 billion to generic competition.

The company is looking to drive the bottomline through cost-cutting initiatives and share buybacks. The weak late-stage pipeline coupled with the slow Brilinta uptake also bothers us.

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