TEVA - Axsome: Teva's ANDA Is No Surprise And No Big Deal

Summary

• Teva filed an ANDA challenge against Auvelity four months after approval.
• The filing defines, for me, the hurdles generics will face in challenging Axsome's huge patent estate.
• Expect more filings in the next 12-18 months, but these are not major hurdles for Axsome.

A week ago, Teva ( TEVA ), the world's largest generic drugmaker, sent a Paragraph IV Certification Notice Letter to Axsome ( AXSM ) communicating its submission of an Abbreviated New Drug Application (ANDA) for Auvelity, Axsome's newly approved drug for depression. Axsome "traded lower in the morning hours" that day, but has since recovered. What does it mean, in general, and what does it mean for Axsome stock?

Axsome is a developer of CNS therapeutics. It has five assets in trials, two of them also approved. These are:

AXS-05 - Branded as Auvelity, proprietary formulation of dextromethorphan and bupropion, oral NMDA receptor antagonist already approved for Major Depressive Disorder ('MDD'), currently in phase 3 trial for Alzheimer's disease agitation and a phase 2 trial for smoking cessation. The phase 3 AD study has an estimated primary completion date of June 2025.

AXS-07 - oral MoSEIC™ (Molecular Solubility Enhanced Inclusion Complex) of meloxicam and rizatriptan. In Sept 2021, submitted an NDA for the treatment of migraine, supported by results from two Phase 3 trials, MOMENTUM and INTERCEPT, which demonstrated statistically significant elimination of migraine pain with AXS-07 compared to placebo and active controls. AXS-07 was issued a CRL in May 2022 for manufacturing issues; no problem with safety or efficacy, and no new trials requested. Plans to resubmit the NDA in Q3 2023.

AXS-12 - AXS-12 (reboxetine) is a highly selective and potent norepinephrine reuptake inhibitor being developed for the treatment of narcolepsy. Currently in phase 3, after positive phase 2 data in narcolepsy - estimated primary completion date June 2023. Reboxetine is approved for depression in various European countries.

AXS-14 - AXS-14 (esreboxetine) is an oral, highly selective and potent norepinephrine reuptake inhibitor. Esreboxetine, a modified version of reboxetine, is more potent and selective than racemic reboxetine. Currently in plans to file an NDA, AXS-14 met the primary endpoints, demonstrating statistically significant data in a Phase 3 and in a Phase 2 trial in fibromyalgia.

Sunosi - a dopamine and norepinephrine reuptake inhibitor (DNRI) approved to improve wakefulness in adult patients with excessive daytime sleepiness associated with narcolepsy or obstructive sleep apnea ('OSA'). Purchased by Axsome from Jazz Pharma last year for $53mn upfront; in 2021, the drug brought in $58mn in sales. Currently in a phase 2 trial in ADHD.

Auvelity is a rapid-acting antidepressant. Current antidepressants in the market may take six to eight weeks or even longer to work, however, Auvelity can start producing effects in less than a week. According to Axsome, Auvelity is the first oral MDD drug with a new mechanism of action to enter the market in almost 60 years. Unlike Johnson & Johnson's nasal spray Spravato, Auvelity is approved as a first-line treatment. There are a large number of generic antidepressants in the market consisting of over 20 million Americans suffering from MDD; however, if Auvelity can get its marketing and insurance act right, it has blockbuster potential. For insurance companies, the highlight is its quick-acting capability, which can reduce drug intake duration and also reduce other effects caused by the disease. This includes weight gain, which is caused by many generic antidepressants but was not seen in trials of Auvelity in over 1,100 patients.

Being a combination of two existing drugs, Auvelity needs to ensure strong patent protection in order to survive the generic drugmaker onslaught. Auvelity does not currently have a composition of matter patent granted, but this one is patent pending:

Dosage forms and methods for enantiomerically enriched or pure bupropion

Abstract

Described herein are dosage forms of enantiomerically enriched ((S))-bupropion or enantiomerically enriched ((R))-bupropion. The ((S))-bupropion or the ((R))-bupropion may be deuterium enriched, or may have natural isotopic abundance. These dosage forms may be administered, either fed or fasted, to treat a condition recited herein, to achieve a certain pharmacokinetic parameter of a bupropion or a metabolite of a bupropion, and/or to enhance dextromethorphan plasma levels.

The novel composition here consists of enantiomeric enrichment, which means adding more enantiomer than usual. Such enantiomeric enrichment patents are sometimes granted, for example here . However, there's a lot of literature pertaining to the patentability of enantiomeric compounds over their racemate ones, see this :

With a history of jurisprudence that encompasses over sixty years, the statement that an enantiomeric composition is patentable over its racemate does not reverberate as groundbreaking to the patent community. But maybe it should shake it a little. An enantiomer is a compound composed of one of a pair of isomers. Each enantiomer is a nonsuperimposable mirror image of the other. A racemate consists of equal parts of each enantiomer, and a formulation chemist conventionally generates a racemate prior to a synthesis of either enantiomer individually. An individual enantiomer that was previously a component in a patented racemic mixture is not patentable as a compound, because that enantiomeric compound was necessarily disclosed as a component of the racemate. Thus, while a claim to an enantiomer as part of a composition is patentable, a claim to an enantiomeric compound previously sold or disclosed as a component of the racemate is not patentable.

For those wishing to understand the subject, the reference above should be studied. Note that deuterium-enrichment adds another layer of patentability to the compound, however, note that patents can be defended better if they claim "metabolic outcomes from deuteration that would not be anticipated from the prior art, and are instead unexpected and unobvious."

Now, coming to the Teva ANDA, key parts from the 8-K :

In the Notice Letter, Teva alleges that four of the patents listed in the FDA Orange Book for Auvelity, U.S. Patent Numbers 10,780,064; 10,925,842; 10,940,124; and 10,966,942, each of which expires in 2040, are invalid, unenforceable, or will not be infringed by Teva's manufacture, use, or sale of the generic product described in its ANDA submission. The Paragraph IV Certification does not challenge any of the remaining Orange Book listed patents for Auvelity which have expirations out to 2034.

So, first of all, AXS-05 does not have a generic challenge for 11 more years. Only 4 of the 2040 patents are being challenged here. There are 103 patents listed in the Orange Book for Axsome's Auvelity, out of which 98 are 2034 expiry patents, and 4 are 2040 expiry. The best guess outcome here is that, even in the worst case, Axsome and Teva will settle the matter out of court, and Teva will perhaps be allowed to launch a generic sometime between 2034 and 2040, possibly in the middle of that range. If Axsome gets its composition of matter patent granted, however, even that may be difficult for Teva to achieve. Meanwhile, for the next 11-15 years, Auvelity will not have a generic version, while Axsome will also see some of its other assets in the market.

Indeed, for me at least, Teva's challenging only the 2040 patents (they can always add more challenges later, or others can challenge other patents) leads me to believe that they do not think the 2034 patents are as easily challenged. Note, however, that BofA, who seems to hold a generally negative view of Axsome, says this, courtesy thefly :

After Axsome Therapeutics ( AXSM ) disclosed yesterday that Teva ( TEVA ) submitted a Paragraph 4 patent challenge against Auvelity for MDD, BofA analyst Jason Gerberry said the IP challenge "comes as expected" and is not a surprise since Auvelity is not a new chemical entity and "lacked the regulatory exclusivity necessary to shield the drug from early IP challenge." The "only surprise" is that the challenge came so quickly, happening only about four months post Auvelity's commercial launch, according to the firm. BofA reiterates an Underperform rating and $52 price target on Axsome as it expects Auvelity's MDD launch to fall short of consensus expectations.

Perhaps BofA's irrational negative view is another reason for us to be bullish. I call it irrational because AXSM has a market cap of less than $3bn, and it has multiple positive shots on goal, and there's no way to predict the MDD launch right now. Even if MDD does not deliver exactly as promised, it has 4 other candidates that will fill the lacunae in the next 5 years or less. At current prices, AXSM is, therefore, unputdownable.

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