What's Behind Acorda Therapeutics Crashing 24.5% Today

What happened

Acorda Therapeutics (NASDAQ: ACOR) shares fell nearly 25% on Monday following word that a U.S. District Court of Appeals has held up a lower court ruling invalidating key patents on Ampyra, a multiple sclerosis drug that accounts for most of the company's sales.

So what

In March 2017, the U.S. District Court of Delaware invalidated four patents protecting Amprya from generic competition until between 2025 and 2027, clearing the way for drug companies to launch generic Amprya as early as July 30, pending the outcome of an appeal.

Unfortunately for Acorda Therapeutics, the Court of Appeals has upheld the prior ruling, casting doubt on the company's future revenue. Amprya contributed $543 million to the company's $588 million in revenue in 2017 and $150 million of its $153 million in revenue in the second quarter of 2018.

Acorda Therapeutics is weighing its options, including another appeal; however, investors ought to model for a rather quick decline in revenue given the company had this to say in its second-quarter 2018 10-Q filing with the SEC:

Now what

Acorda Therapeutics had negotiated with drugmakers, including Teva Pharmaceutical (NYSE: TEVA), to delay their generic versions of Ampyra until after the court's decision. Now that the verdict is in, these drugmakers will probably launch their respective drugs under the assumption any future appeal will also go in their favor. If so, then Acorda Therapeutics' revenue could tumble soon.

Although losing patent protection on Ampyra is a blow, the decision isn't a complete surprise to management. They've orchestrated a series of royalty-streaming deals to bolster their balance sheet ahead of the U.S. Food and Drug Administration's planned decision on Inbrija, an inhaled formulation of levodopa. Inbrija has an FDA decision date of Oct. 5 and, if approved, management thinks its peak sales would be $800 million in the United States alone.

The potential for Inbrija to offset lost Amprya sales is a positive, but there's no guarantee Inbrija will secure an OK in October or that if it does, it will become a top seller. Given the possibility for generic Ampyra launches and Inbrija uncertainty, investors should probably consider other investments with less risk for now.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.