Investors: Here’s a Glimpse into the Tough World of Pharmaceuticals

For pharmaceutical manufacturers Pfizer (NYSE:PFE) and Johnson & Johnson (NYSE:JNJ), business has been fraught with pitfalls, like revoked patents and large lawsuits, but for drug manufacturer Merck (NYSE:MRK), the announcement of new clinical trial results have driven up share prices.

Pfizer has announced Friday that its India unit will challenge the country’s patent office for revoking a patent for its cancer drug Sutent, and as a result, the company has developed concerns over India’s commitment to protect intellectual property.

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The decision was not an isolated event, but the last conflict between large pharmaceutical companies and the Indian government. The country’s patent office stripped Germany’s Bayer AG (BAYRY.PK) of its exclusive right to sell another cancer drug, Nexavar, in March, and last September, the Delhi High court ruled in favor of a local drug maker over Switzerland’s Roche (RHHBY.PK) in a patent infringement case.

For Western drug companies, India’s $12 billion drug market is seen as a great opportunity, but that opportunity comes at a price; the level of protection for intellectual property is small and generic medicines account for more than 90 percent of sales.

On Thursday, New Jersey-based Johnson & Johnson agreed to settle five lawsuits at the Philadelphia Court of Common Pleas. The lawsuits are among more than 400 in which J&J and its Janssen unit were accused of personal injuries caused by its antipsychotic drug Risperdal, the company said in an August regulatory filing. More than 100 of the suits claimed that the drug caused increased breast-tissue growth in young males. However, the terms of the settlement were not disclosed at the hearing.

Risperdal, which the U.S. Food and Drug Administration gave its approval for in 1993, was originally meant to treat schizophrenia, but regulators approved it for other uses later. Johnson & Johnson has denied any wrongdoing, but, when the case went to trial, the plaintiff’s lawyer, Bob Hilliard, argued that the drug company hid the fact that the drug could increase hormone levels that prompted breast development in males. In response, J&J lawyers contended that the development was normal for a teen going through puberty.

The United States has investigated Risperdal sales practices since 2004, according to a regulatory filing. Earlier this year, Johnson & Johnson officials reached an agreement with the U.S. Justice Department to pay as much as $2.2 billion to resolve the issue. Furthermore, the company agreed to pay $181 million in order to resolve claims in 36 states that the drug was improperly marketed. In April, a judge in Arkansas ordered the drug manufacturer to pay $1.2 billion in fines, and a case in Texas resulted in a $158 million settlement. In June 2011, a South Carolina Judge ordered J&J to pay $327 million in penalties for deceptive marketing, and the company lost a bid on August 31 to have Louisiana court throw out an award of almost $258 million.

But for Merck, the announcement that its new drug MK-3012 helped lower blood sugar in clinical trials caused stock prices to rise 34 cents to close at $46.12 on Thursday. With diabetes affecting 26 million people in the United States, the market for the once-weekly treatment option could be huge.

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