Omer regev
07/09/2016
SUMMARY
After invalidating Teva's '250 and '413 40 mg/mL Copaxone patents on 8/24 through than Inter Partes Review (IPR) decision, the Patent Trial and Appeal Board (PTAB) yesterday announced a similar conclusion for the remaining '302 patent. In light of the uncertainty surrounding the IPR decision, we had moved to a Perform rating in early August and previously suggested using an options strategy or paring down a position in Teva ahead of the IPR ruling. The validity of Teva's Copaxone patents now lie with the District Court decision, which will likely come in early 2017. Our understanding is that the court ruling is the more important of the two, with a higher hurdle to invalidate the patents. We move to an Outperform rating on Teva.
KEY POINTS
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IPR Ruling: After invalidating the Copaxone 40mg/mL '250/'413 patents last week, the PTAB yesterday invalidated the '302 patent as well under an IPR proceeding. Our prior consultant work indicated a 50/50 "toss-up" scenario on the IPR, with the patents skewed toward being weaker. Importantly however, we note that in mid-August the PTAB declined a request for a PGR on the '776 patent.
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Next Steps: Teva will now await a district court hearing to decide the validity of Copaxone's patents. Judge Gregory Sleet of the US District Court for Delaware will preside over the Copaxone patent case. We note that Judge Sleet is the same judge that previously ruled in Teva's favor, upholding the validity of Treanda's formulation patents in a case in mid-June.
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Consultant Commentary: While the IPR decision is a significant catalyst for Copaxone, our consultant conversations indicate that the District Court ruling (likely in 1Q17) will be more important. Though the District Court could benchmark its ruling to the PTAB, our consultant checks indicate that the judge would likely review the case independently, giving Teva another shot on goal.
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Rating Change: In our move to a Perform rating in early August, we indicated that we would revisit our thesis after the IPR decision. We were concerned with any investor overreaction in the lead-up to the IPR decision, or to the PTAB invalidating the patents. With the IPR now complete, we move back to an Outperform rating and $66 PT.
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Model Changes: We are not changing our estimates at this time. Our 2016/2017 revenue estimates remain $22.0B/$25.9B (vs. guidance of $22.0-22.5B for 2016 and $25.2-26.2B for 2017). Our 2016/2017 adj. EPS estimates remain $5.20/$ $6.01 (vs. guidance of $5.20-5.40 for 2016 and $6.00-6.50 for 2017). We move to an Outperform
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