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Ozempic Just Shrugged Off a Challenge From Viatris. What Does This Mean for Investors?

Motley Fool - Tue Oct 31, 2023

As you may have heard, Novo Nordisk (NYSE: NVO) makes Ozempic, the type 2 diabetes medication sweeping the globe and raking in billions in the process. Where there's a money-printing drug in ascent, there's almost always a dispute about exactly who is the rightful owner of the relevant intellectual property (IP).

On that note, on Oct. 2, the generic drugmaker Viatris (NASDAQ: VTRS) saw its legal attempts to invalidate two of the patents pertaining to Ozempic and its sister drug Wegovy, which is indicated for treating obesity, get struck down by the U.S. Patent Office. But a couple of days later, on Oct. 4, the Patent Office assented to a third challenge from Viatris and agreed to review whether the associated patent covering the two medicines is valid.

If the patent is found to be invalid, it'll have major implications for both Novo Nordisk and Viatris, even though the other two challenges didn't go anywhere. Here's what investors need to know.

A high-stakes legal battle is now underway

The three patents Viatris challenged all pertain to the dosing of the molecule semaglutide, the active ingredient in Novo Nordisk's drugs Ozempic, Wegovy, and Rybelsus, not to mention six of its late-stage pipeline programs. The conflict stems from Viatris' desire to commercialize a generic copy of semaglutide. It's no surprise why it wants a slice of Novo Nordisk's pie.

After bringing in $5.9 billion in the first half of this year alone, Ozempic sales could total nearly $12.5 billion for 2023, up by potentially 23% year over year. Given that Wall Street analysts estimate that the company's top line will be around $32 billion for the year, it's obvious that semaglutide is Novo's biggest moneymaker and its most significant driver of near-term value. In contrast, Viatris' trailing-12-month revenue is $15.6 billion. Capturing even a small fraction of the annual semaglutide sales could mean adding a huge amount to its revenue.

In the absence of any successful legal challenges, the patent cliff for semaglutide will occur toward the end of 2031. In contrast, if most or all of its semaglutide patents were invalidated before then, Novo Nordisk would likely be in shambles, as its revenue would crash.

Even if only one of the patents is successfully challenged, it could still cause a (smaller) problem in the form of obligatory remuneration to the plaintiff, which might cost on the order of hundreds of millions of dollars per year. That explains why the company initiated a patent infringement lawsuit of its own against Viatris early this year. This issue is too big to leave to chance in the patent court system.

Don't rush to buy (or sell) just yet

The U.S. Patent Office will deliver a verdict on Viatris' remaining challenge in October 2024. By that time, Novo Nordisk will have banked the better part of a year of additional earnings from Ozempic and its other semaglutide medicines. If Viatris wins, there will still likely be clinical, legal, and regulatory barriers in the way of it commercializing a copy of Ozempic right away.

Don't expect the stock to rise by much until those obstacles are addressed, assuming they are. Be aware that it could easily take a few years. Likewise, don't automatically assume that the result will be a game-changer. The details of the Patent Office's findings will matter. As the IP pertaining to the dosing of semaglutide is what's in dispute, a verdict could potentially only apply to the commercialization of certain doses or certain methods for determining the appropriate dosing.

Therefore, if news of this legal conflict had you racing to log in to your retirement account to either buy or sell Novo Nordisk or Viatris stock, take a deep breath and step back. The implications of this IP fight could be significant. But the worst case for Novo Nordisk, which would also be the best case for Viatris, is no longer on the table.

What remains is a small-to-moderate risk for one of the pair and a chance of experiencing a moderate upside for the other. If you were generally bullish or bearish about either business before, your opinion should not flip. At the same time, if you were on the fence about either, this issue is nowhere near settled enough for it to tip you firmly one way or the other. Just be aware that the patent decision is on the horizon.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk and Viatris. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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