Merck's $4.4 Billion Singulair® (Montelukast) Franchise -- in Accelerating Jeopardy?

As was widely reported on Friday, not only are generic manufacturers (like Teva) counter-suing Merck -- alleging that Merck's patents covering Singular^® (montelukast) are invalid -- but now, insurers are joining the fray, also claiming that Merck's "inequitable conduct", by failing to disclose prior art, has thus rendered the disputed patents invalid for "obviousness". [A full-text, 30 page, 1.6 Mb PDF-file copy of the putative class-action unlawful monopoly complaint, filed in New Jersey federal district court, as Case No. 09-4050 on August 11, 2009 -- appears here, for the ease of reference of our readers.]

These insurers' suits -- now seeking federal consolidated class action status -- may be a bigger problem for Merck, than just the more-typical, and straight-forward, patent fight with a generic competitor, directly. How so? Well, if Merck loses to a generic competitor like Teva, the remedy is usually that the generic competitor (like Teva) may begin selling a generic form of montelukast, the active ingredient in Singulair, immediately. That is, there is only-rarely an assessment of "prior lost sales" types of damages.

On the other hand, if Merck loses to the insurers (all of whom have pair perhaps billions to Merck already, over the years, for Singulair) on the unfair restraint of trade/anti-trust theory, Merck may be required to "pay-back" all the amounts the judge finds were the result of the artificially-inflated, or "unlawful monopoly" prices -- in this case, since 2003, or nearly seven years -- at $3.5 to $4 billion per year. Ouch -- if such damages are awarded, they will run something like 30 percent (the branded Singulair gross margin) of roughly $26 billion (or, ~$3.7 billion a year, times 7 years), or damages of as much as $8.4 billion(!). Here's the whole AP story, and a particularly-salient snippet:

. . . .The battle over the patent on Merck and Co.'s allergy and asthma drug Singulair^®, the best-selling drug of one of the world's largest drug makers, continued Friday as a group of drug distributors and health insurers sued Merck.

The filers say Merck should never have been awarded one of the key patents supporting the drug, and that is has wrongfully intimidated rivals by suing them for patent infringement, which has kept competing versions of Singulair off the U.S. market and allowed Merck to charge a higher price for Singulair.

The companies say Merck kept a monopoly on the drug, and as a result, they have overpaid for Singulair over the last six years. The claimants in the cases are Louisiana Wholesale Drug Co., Burlington Drug Co., Miami-Luken Inc., District Council 37 Health & Security Plan and The Guardian Life Insurance Co.

Singulair is Merck's top-selling product, with $4.3 billion in sales in 2008, and $4.4 billion to $4.7 billion expected this year. The drug was approved in the U.S. in February 1998, and the patents supporting the drug are scheduled to expire in 2012.

The companies say Merck did not tell the U.S. Patent and Trademark Office about research that made Singulair's chemical makeup "obvious," meaning it could have been discovered by any other researchers. Patents are not given to drugs that are deemed obvious, and obviousness is one reason a patent can be thrown out. . . .

Do stay tuned, here -- we'll keep you posted, as developments warrant on this one, but $8.4 billion is a huge number -- even to the soon-to-be No. 2 drug company on the planet. Bank that.