Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) fell 8.5% on four times its average trading volume on Nasdaq on Monday, after publishing disappointing results for the forte trial of Copaxone 40 mg dosage for the treatment of multiple sclerosis. The investors' reaction was ferocious and Teva's market cap was slashed by $3.4 billion.
The share fell 5.8% on the TASE on Monday in reaction to the Copaxone news and the share's slump on Nasdaq, but regained 1.6% yesterday. Teva rose 4.2% on Nasdaq yesterday to close at $45.01.
Leader Capital Markets analyst Yoav Burgan said, "Teva is being increasing judged as a regular pharmaceutical company, not as a generic one. We clearly saw this Monday. Investors estimate Teva's long-term growth on the basis of its innovative pipeline. The company is fined for every miss or result that is negatively interpreted. Investors expect Teva to make the transition from a generic-oriented company to an original drug oriented company by the middle of the next decade. They are therefore already placing greater weight and attention to the innovative pipeline, first and foremost to Copaxone and its next generation versions - the 40 mg dosage, and Laquinimod (oral Copaxone)."
What's next? What are the challenges and opportunities facing Teva, and what can be expected in the future? "Globes" mapped the main issues that the company and its investors are dealing with now and which they will deal with in the near future.
Teva chief R&D officer Dr. Ben-Zion Weiner told "Globes", "We're the world's leading generic drug company. Teva is working on hundreds of long-term products for the US, Europe, and the rest of the world."
Burgan says, "The current period is the peak for generics in terms of patent expirations. Investors are beginning to worry about what will happen next, and Teva -as the market leader - is being judged even more harshly."
IBI Investment House analyst Noa Weisberg notes that Teva has a backlog of 150 generics products whose original drugs have $90 billion in aggregate annual sales. Teva recently exclusively launched generic Risperdal, which has $2.6 billion in annual sales. However, the launch of generic Seroquel, which has $2.9 billion in annual sales, was blocked when a US federal court upheld the patent of the drug's maker, AstraZeneca plc (NYSE; LSE: AZN). Teva is appealing the ruling.
Biogenerics
Weisberg says, "The generics market was essentially created by the Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman Act). A number of bills are now on the agenda aimed at preparing the launch of biogenerics. Teva has big plans for this. It has two plants and is already selling one biogeneric product, a growth hormone. The company acquired US biopharmaceutical company CoGenesys Inc. and it is ready. The moment a law is passed - Teva will be there."
Original drugs
Weiner says, "Our first priority is generics, but we're supplementing them with biogenerics, as well as with the development of original drugs. Most of our proprietary R&D activity is based on Israeli science, which is an advantage that other large drug companies lack. We can pick the scientific diamonds that will become drugs, and we're good at it." He notes that Teva is developing treatments for cancer, multiple sclerosis, and autoimmune diseases.
In February, Teva unveiled its five-year strategic plan, which sets a target of $4 billion profit on $20 billion revenue in 2012. Weiner says, "The plan states that most of the growth will be organic. I assume that Teva will also make acquisitions in the coming years, which is the upside to the plan."
Acquisitions
In response to the question of where could Teva make acquisitions, Weiner replied, "In the US, Europe, South America, and everywhere in the world, especially in countries with significant current generic activity, or where it will become significant." He does not, of course, rule out strategic acquisitions, such as CoGenesys in the biogenerics field. "Every acquisition is judged according to strict criteria. We won't pay for something that does not meet our criteria or strict economic models. For example, we didn’t acquire the generic business of Germany's Merck KGaA last year," he noted.
Weissberg says, "Teva's cash flow makes acquisitions possible. Teva needs a foothold in Germany, which is the world's fourth largest generic market. Japan, which is ready to accept generics, might also be an interesting market. It has a large population and growing proportion of elderly, so generics will enter the market one way or another."
As for Copaxone, Weiner says, "It's a pity that we failed to demonstrate that Copaxone 40 mg was more effective than the 20 mg dosage, but we proved that Copaxone is an excellent product. I manage the R&D and I've been with Teva for 33 years, and I know the industry well. A lot of products fail in Phase III clinical trials which passed Phase II trials. Teva didn’t create any expectations around this trial. We hoped that it would succeed, but the market created the expectations, partly on the basis of the Phase II trial results. All in all, Copaxone is Teva's unique flagship product, and the emotions are high."
Published by Globes [online], Israel business news - www.globes-online.com - on July 9, 2008
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