Patent Peril: 3 Stocks at Risk From the FTC’s Drug Crusade

Stocks to sell

Several drug stocks are at risk as the Federal Trade Commission is going after pharmaceutical companies that it alleges are trying to keep generic drugs at bay from their branded products.

The Biden administration is attacking businesses across the board, such as its recent assault on the oil industry. Yet it risks killing off the drug discovery market with its actions by disincentivizing companies to find new treatments. For example, inventors of technology developed with federal funding retain rights to the patents. However, the administration is using so-called “march-in” rights that allow it to strip the owners of their property if regulators think the prices charged are too high. It is expanding that theory to drugs as well.

The FTC tried to do that last year when it wanted to seize Pfizer‘s (NYSE:PFE) cancer drug Xtandi. It decided against it but did undertake a review on when it could use the powers created under the Bayh-Dole Act of 1980. 

While the Food & Drug Administration oversees the regulation of pharmaceuticals, Biden’s FTC is extending its reach to numerous areas that have typically been outside its purview. 

Now it is coming after a whole new group of drugs and companies. The FTC is targeting over 300 patents filed by 10 pharma stocks that it alleges are using “junk patents” to protect their investments. Below are three drug stocks at risk from the expanded list of patents that the FTC announced it was challenging.

Novo Nordisk (NVO)

Source: joreks / Shutterstock.com

Arguably one of the most shocking drug stocks at risk being called out by the FTC is Danish pharmaceutical Novo Nordisk (NYSE:NVO). Novo has been riding a tsunami of profit from its twin diabetes and obesity drugs, Ozempic and Wegovy. 

The FTC took issue with the pharma’s listing of patents for Ozempic in the Orange Book, which lists drug products approved by the FDA as safe and effective. It gives generics the ability to come to market. By listing the patents in the FDA’s book, Novo Nordisk is granted an automatic 30-month stay from generic competition. In addition to Ozempic, the FTC is also challenging the pharma’s listing of patents related to injectable weight-loss drug Saxenda and injectable Type 2 diabetes therapy Victoza.

The regulatory body alleges Novo Nordisk violated antitrust laws by “improperly” listing the patents.

Sales of Ozempic surged 42% in the first quarter to 27.8 billion kroner, or $4 billion. Prices fell during the period as competition from Eli Lilly (NYSE:LLY) hit the market. However, Novo Nordisk still raised its full-year guidance due to explosive demand. Victoza sales tumbled 23% due to Ozempic’s rise while Saxenda sales plunged 49% as Wegovy sales more than doubled.

Teva Pharmaceutical Industries (TEVA)

Source: JHVEPhoto / Shutterstock.com

Teva Pharmaceutical Industries (NYSE:TEVA) also got a warning letter from the regulator for its COPD and asthma therapies. Other companies have received letters for their COPD inhaler therapies as well, including GSK (NYSE:GSK), Novartis (NYSE:NVS), Boehringer Ingelheim and Covis Pharma

The FTC has been going after Teva for months now. Last November it challenged 100 patents in the Orange Book and then filed an amicus brief in Teva’s lawsuit against Amneal Pharmaceuticals (NASDAQ:AMRX). In the federal court brief, the agency said Teva used its “improper listings” to block Amneal from bringing a cheaper inhaler to market. It wants the court to delist Teva’s patents for its ProAir HFA inhalers. The current list of patented products the FTC is attacking includes Teva’s AirDuo Respiclick, AirDuo Digihaler, ArmonAir Respiclick and ArmonAir Digihaler.

Teva’s U.S. revenue rose 2.8% in the first quarter to $1.7 billion. However, most of its increases came from products not associated with the FTC complaints. These FTC complaints create the potential to put TEVA drug stock at risk.

Amphastar Pharmaceuticals (AMPH)

Source: Dmitry Kalinovsky / Shutterstock.com

Amphastar Pharmaceuticals (NASDAQ:AMPH) is under attack by the regulatory agency for Baqsimi, the first and only nasal spray to treat hypoglycemia. The FDA approved Baqsimi in 2019. While there were glucagon injections people could use for the same illness, the FDA noted, they first had to be mixed in a multi-step process. Baqsimi, it said, “may simplify the process, which can be critical during an episode, especially since the patient may have lost consciousness or may be having a seizure.” 

Amphastar acquired the drug from Eli Lilly for more than $1 billion last year. It reported sales of Baqsimi jumped 22% over Lilly’s Q1 results last year to $13.8 million. President and CEO Dr. Jack Zhang said the results show the therapy’s “strong transition and the potential for continued growth.”

The FTC, of course, is trying to undermine that possibility by allowing cheaper generics onto the market. It is a prescription of disincentivation for companies to pursue drug development because regulators think prices are “unreasonable.” 

On the date of publication, Rich Duprey did not hold (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.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

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