While pharmaceutical companies often face great risks in the clinical testing arena, they can also suffer extraordinary setbacks in the courtroom, as Bausch Health (NYSE:BHC) unfortunately demonstrated today. Authorities halted trading on BHC stock as it plunged 50% during the morning session. An unfavorable ruling on Bausch’s patent battle against Norwich Pharmaceuticals – which aims to develop a generic version of the former’s Xifaxan drug – severely clouded BHC’s viability.
Purely from a legal perspective, the court’s decision regarding the status of Xifaxan, a therapeutic for treating irritable bowel syndrome with diarrhea and liver disease, was a mixed bag. Federal district court Judge Richard G. Andrews ruled that Norwich’s proposed generic “will induce infringement of the asserted [hepatic encephalopathy] patent claims, and would induce infringement of the asserted [irritable bowel syndrome with diarrhea], and Polymorph patent claims if they were valid.”
Further, Judge Andrews stated, “Norwich has failed to show that the asserted HE claims are obvious and that they lack adequate written description. The asserted Polymorph and IBS-D claims are invalid as obvious.”
But that was the only good news for BHC stock. The bad news was that Bausch failed to win patent claims on the Xifaxan’s polymorphs and IBS-related components, thus enabling Norwich to launch its generic competitor.
A Headwind that BHC Stock Did Not Need
For stakeholders of BHC stock, the courtroom drama couldn’t have come at a worse time. Earlier this year, Bausch spun off its lucrative Bausch and Lomb (NYSE:BLCO) brand, one of the world’s top suppliers of contact lenses and related products. Therefore, Bausch Health’s subsidiary Salix Pharmaceuticals, which developed Xifaxan, now represents the parent firm’s largest revenue source.
It’s also worth noting Bausch Health previously operated under the brand Valeant Pharmaceuticals. As you may recall, Valeant embroiled itself in a major scandal. Essentially, accusations stated the company “misled investors by improperly accounting for revenue channeled through a mail-order pharmacy it helped to set up.” Therefore, BHC stock needs as many wins as possible to restore market trust.
According to a JPMorgan Chase analysis, the court ruling over Xifaxan could allow Norwich to introduce its generic alternative in the late 2024 to 2025 time frame. If that wasn’t enough, the bank also downgraded BHC stock to “neutral” from “overweight.”
Why It Matters
Aside from the obvious potential revenue disruption, the agonizing matter for BHC stock is that analysts previously regarded Xifaxan as bulletproof from generic competition for many years. Years ago, Teva Pharmaceutical (NYSE:TEVA) sought to introduce a cheaper alternative. However, it suffered problems meeting the Food and Drug Administration’s approval criteria.
The setbacks led Jefferies analyst David Steinberg in 2018 to declare that Xifaxan patents extended out to 2029, and that he expected the drug to keep its exclusive lock on the market. That appears to no longer be the case, adding additional context to the pain imposed on BHC stock.
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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
