Shares of Aquestive Therapeutics (AQST) are sliding after Dr. Reddy's Laboratories (RDY) announced that the U.S. Court of Appeals for the Federal Circuit issued a decision in favor of the latter, vacating the District Court's preliminary injunction that had prohibited Dr. Reddy's from selling its generic version of Indivior's Suboxone. While noting that the Aquestive selloff appears "meaningfully overdone," RBC Capital analyst Randall Stanicky believes this will impact the milestones that the company receives from Indivior, with the remaining milestones now unlikely. Meanwhile, his peer at BMO Capital sees the situation as fluid and "very manageable".

BUPRENORPHINE, NALOXONE LITIGATION: Last night, Dr. Reddy's Laboratories along with its subsidiaries announced that the U.S. Court of Appeals for the Federal Circuit issued a decision in favor of Dr. Reddy's Laboratories, concluding that Indivior had not shown that it is likely to succeed on the merits of its infringement case on U.S. Patent No. 9,931,305. This decision vacates the District Court's preliminary injunction that had prohibited Dr. Reddy's from selling its generic version of Suboxone sublingual film. As a result of the ruling, Dr. Reddy's will resume its launch activities "as soon as permitted". In a statement following the news, Aquestive Therapeutics said that "While we are disappointed by the court's decision, we will continue to work with Indivior to vigorously pursue ongoing infringement cases against DRL and other generic manufacturers in order to protect the Suboxone patent portfolio. [Yesterday's] action does nothing to change the validity and assertability of any of the patents in our portfolio".

AQUESTIVE SELLOFF OVERDONE: In a research note to investors, RBC Capital's Stanicky argued that the decision to lift the preliminary injunction on Dr. Reddy's launching a generic version of Suboxone will impact the milestones that Aquestive receives from Indivior, with the remaining milestones now unlikely. However, he noted that Suboxone in total comprises about $3 per share in value in his model, which is meaningfully less than the two-day selloff of $7 in the stock, which makes the pullback "meaningfully overdone." Looking ahead, the analyst believes the focus for Aquestive is on the proprietary side of its business, including the recent launch of Sympazan oral film. Stanicky reiterated an Outperform rating and $24 price target on Aquestive shares.

LOSS ON SUBOXONE APPEAL 'MANAGEABLE': Also commenting on the news, BMO Capital analyst Gary Nachman said that while the appeals court ruling "disappointing and surprising," and could trigger an at-risk launch by Dr. Reddy's, the situation is fluid and "very manageable." Acknowledging that there is "certainly a possibility" Indivior and Dr. Reddy's could settle, the analyst also noted that it is not completely clear if that would trigger accelerated launches of generic Suboxone from Mylan (MYL) and Endo International (ENDP)/Par. Overall, Nachman believes that Aquestive's ex-U.S. Suboxone revenue, while currently small, is a much bigger driver of long-term value. The analyst reiterated an Outperform rating and $26 price target on Aquestive shares.

PRICE ACTION: In afternoon trading, shares of Aquestive have dropped over 23% to $10.11, while Dr. Reddy's stock is fractionally down to $36.36.