Maryland-based biodefense contractor Emergent Biosolutions (NYSE:EBS) received an unfavorable ruling in its patent litigation trial with American-Israeli pharmaceutical company Teva Pharmaceuticals involving nasal spray product Narcan. The mid-cap biotech stock dropped more than 20% in reaction to the news.
The U.S. District Court for New Jersey ruled in favor of the defendants in the patent infringement lawsuit over Teva’s development of a generic version of opioid overdose treatment Narcan. The lawsuit was filed in conjunction with Emergent’s commercial partner Opiant Pharmaceuticals. The claims related to the four Narcan patents, however, were found to lack validity. Teva received FDA approval in April 2019 to develop the first generic version of naloxone hydrochloride nasal spray, commonly referred to as Narcan.
Despite the decision, the company said that it plans to appeal the decision. Senior Vice President Doug White stated, “We are understandably disappointed by the decision today. We remain committed to expanding awareness, maintaining affordability, and increasing access to NARCAN Nasal Spray, to improving public health, and to assisting those dedicated to ending the opioid crisis.”
Narcan is a life-saving medication that reverses the effects of opioid overdose. The product was developed by Opiant and licensed to Adapt Pharmaceuticals which was later acquired by Emergent. Of the over 67,000 U.S. deaths caused by drug overdoses in 2018, nearly 70% involved a prescription or illicit drug according to the Centers for Disease Control and Prevention.
Emergent BioSolutions SEC Filings
Potential for generic Narcan puts Emergent’s profitability at risk
While the news was certainly a positive for Teva, it was a major disappointment for Emergent. The company noted that an update to its 2020 financial outlook will be provided when it reports second quarter results on August 6th. The forecast will most certainly reflect lowered expectations for Narcan which now faces the potential of competing against a less expensive generic product produced by a global pharmaceutical powerhouse. A Teva product launch could put approximately one-fourth of Emergent’s earnings at risk because this has been Narcan’s historic contribution to the company’s bottom line.
Investors will also be anxious to hear updates related to Emergent’s development of COVID-19 vaccines and therapeutics. The company announced last week that it is partnering with the U.S. government to rapidly develop a COVID-19 vaccine. As part of the agreement, Emergent will provide contract development and manufacturing (CDMO) services valued at $542.7 million.
Looking ahead
The emergence of generic competition for Narcan may impact Emergent’s profitability as soon as the first quarter of 2021. While today’s news represents a big setback, the long-term potential of the company to consolidate the biodefense industry remains intact. Management has been open in its plans to generate sales and profit growth by way of acquisition. It is targeting $2 billion in revenue by 2024 through a combination of organic growth and M&A activity. Inorganic growth has contributed to its financial results in recent years through the purchases of Narcan, ACAM2000, and raxibacumab, as well as various vaccines.
Emergent has a leading position in the biodefense contracting space that has largely been derived from strong sales of anthrax vaccine BioThrax. It will look to bounce back from the Narcan ruling by moving forward with its COVID-19 vaccine opportunity and continuing to diversify away from BioThrax.
