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$2.15B Settlement for Pfizer's Protonix

Zacks Equity Research

Pfizer Inc. (PFE) recently announced a $2.15 billion settlement agreement related to the “at-risk” launch of generic versions of its blockbuster acid reflux drug Protonix in the US. The agreement follows a 10-year legal battle which saw Pfizer and Takeda (TKPYY) fighting to enforce the Protonix patent.

Teva (TEVA) and Indian generic company, Sun Pharmaceutical Industries, had launched their generic versions of Protonix before the loss of exclusivity.

Teva had launched its generic version of Protonix in Dec 2007, well ahead of the patent expiry date of Jan 2011. Teva’s sales of generic Protonix prior to Jan 2011 were about $1.1 billion.

While Teva will make a payment of $1.6 billion, Sun Pharma will pay the remaining $550 million. Teva intends to pay 50% of its dues this year and the balance by Oct 2014. Meanwhile, Sun Pharma will pay the entire amount this year. Pfizer will receive 64% of the proceeds with Takeda getting the balance.

Teva had set aside a $670 million provision related to this lawsuit in 2012 and expects a charge of about $930 million in the second quarter of 2013. The company expects net insurance coverage of up to $560 million related to this settlement.

We do not expect this settlement agreement to have a major impact on Teva's shares as the company had already set aside $670 million last year for such an outcome. Moreover, Teva had estimated that in addition to this amount, it could incur a loss of up to $1.4 billion for the Protonix settlement. Therefore, the $1.6 billion settlement amount was within Teva’s expectations.

Teva currently carries a Zacks Rank #3 (Hold). At present, Mylan (MYL) looks well placed with a Zacks Rank #2 (Buy).

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