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Recently, United States District Court for the District of New Jersey dealt a blow to AstraZeneca (AZN - Analyst Report) when it ruled that a patent (6,598,603) protecting Pulmicort Respules (budesonide inhalation suspension) in the US is invalid.

Additionally the court also ruled that the generic companies involved in the case, including Actavis, Inc. (ACT - Analyst Report) did not infringe another patent (7,524,834) related to Pulmicort Respules in the US. AstraZeneca intends to appeal against the verdict.

We note that Pulmicort Respules is used as a maintenance therapy to control and prevent asthma symptoms in children between 12 months and 8 years of age. Pulmicort Respules generated US sales of $136 million in 2012.

Since 2009, AstraZeneca has an agreement with Teva Pharmaceutical Industries Limited (TEVA - Analyst Report), whereby it has allowed the latter to commence sales of its generic version of Pulmicort Respules. AstraZeneca continues to sell Pulmicort Respules, even after the licensed entry of Teva's product.

AstraZeneca believes the launch of generic versions of Pulmicort Respules will not have any impact on its revenue guidance for 2013. Revenues are expected to decline in a mid-to-high, single-digit range from 2012 levels (at constant currency basis). However, it will have an impact on royalties received from Teva, which had an annualized value of approximately $260 million in 2012. For 2013, AstraZeneca expects core earnings to decline significantly more than revenue.

Generic competition has adversely impacted AstraZeneca’s revenues over the past few quarters. This has put significant pressure on the company.

AstraZeneca, a  large cap pharma stock, carries a Zacks Rank #3 (Hold). Novo Nordisk (NVO - Analyst Report) is favorably placed in the large cap pharma space with a Zacks Rank #2 (Buy).

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