Pronova's compromise with Apotex a step in the right direction

After just one day of court proceedings in Pronova BioPharma’s crucial US patent litigation battle over Lovaza, welcome news has emerged in the form of a settlement with Apotex. The out-of-court deal with one of three generics firms challenging the validity of the fish-oil product’s intellectual property prompted shares in the Norwegian group to gain as much as 17% today to NKr10, although still below the stock price just six months ago.

The Apotex settlement, which allows the Canadian company to launch a generic version in the US in the first quarter of 2015, is certainly encouraging, but the main challenge awaits. Litigation is ongoing with Teva and Par Pharmaceuticals, and of the two Par is seen as the most aggressive challenger, particularly as the company claims to have signed up a third party with the ability to manufacture the complex product. As such, until either Pronova wins the litigation battle outright or settles with the remaining challengers, investors are unlikely to get much more excited.

Step in the right direction

Of the three generics challengers to Lovaza, it is quite likely that Apotex made the most speculative application for a generic version - perhaps explaining the settlement so early in legal proceedings.

Apart from the timing of Apotex’s generic launch in early 2015, little else was disclosed by the companies. UBS analysts are sceptical that Apotex has the manufacturing capability to produce a generic Lovaza, suggesting the deal will see Pronova manufacturing Apotex’s generic product, with some royalties on Apotex sales payable to Pronova’s US partner, GlaxoSmithKline.

Although technically the patent litigation and settlements are just between the three generics players and Pronova, it seems inconceivable that Glaxo would not have some say or influence over these deals.

The Apotex agreement to launch a generic in early 2015 is a clear compromise, exactly half-way between the expiry dates of Lovaza’s two key Orange Book-listed patents which are the subject of the current trial.

Lovaza’s ‘077 patent, which Leerink Swann analysts believe is more robust, expires in March 2013, while the supposedly weaker ‘667 patent expires in April 2017 (Event - Lovaza patent trial crucial to halt Pronova's bad run, March 28, 2011).

Par’s threat

According to UBS analysts, Par told them last year that the company has already signed a deal with a third party to manufacture the fish oil product. This would potentially give Par a strong position and present the most credible challenge to Lovaza, probably greater than Teva.

UBS analysts wrote today that the Apotex settlement is a “first positive step”, but that “Par remains the riskiest challenger based on the claim that they already have the ability to manufacture generic Lovaza.”

If further settlements are to follow, and there is often a domino effect in these circumstances – for example, deals last year over Takeda’s Actos and Sanofi-Aventis’ Eloxatin – then the crucial deal for investors to await is with Par.

Decent outcome

Similar settlements with Par and Teva for generic launches in 2015 would probably be a reasonable outcome for Pronova, given uncertainty over the validity of the ‘667 patent to 2017 and that current consensus sales forecasts for Lovaza predict a decline from 2013 onwards.

Certainty over Lovaza’s patented life until 2015 would not only appease investors, who hate all uncertain things - it would likely also prompt upgrades to current forecasts for the product.

US sales by Glaxo last year of $819m are expected to peak at $1.1bn in 2012, before gradually falling away to $720m by 2016, according to EvaluatePharma consensus. The reason for this decline is a combination of generic and competitive threat – Amarin’s fish oil product, AMR101, could enter the market next year and is seen as a major threat to Lovaza, based on a superior side effect profile. Sales of AMR101 could exceed $2bn by 2016, analysts believe.

Amarin shareholders seem unperturbed by the prospect of generic Lovaza in 2015. Its shares were unmoved today and continued to trade at healthy levels since positive pivotal data was announced late last year which caused the stock to double in value in December.

But Pronova’s battles with Amarin are for the future - for now its efforts will be concentrated on securing further settlements with Teva and above all, Par.