Back when Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) was recovering from its disastrous $40 billion acquisition of Allergan's Activis, the then new CEO Kare Schultz announced that the Israeli company would focus on generic drugs at the expense of innovative drugs. Schultz's restructuring plan included massive cuts and even the sale of some of Teva's innovative products, which successfully reduced the company's huge debt, which was the main aim that he strove to achieve during his time at the helm.
But what about Teva's engines of growth? Oppenheimer research analyst Omri Efroni recalls that growth was mainly meant to come from biosimilars, generic products in the field of biological drugs, but this approach still hasn't proven itself mainly due to repeated delays in the launch of the promising Humira biosimilar product, which was supposed to be the company's next blockbuster.
Thus in the fourth quarter of 2022, the final quarter under Schultz, revenue was $3.88 billion, 31% down from the third quarter of 2017, when Schultz took office. That was expected. The loss of the patent on flagship drug Copaxone along with the need to reduce activity to cope with the debt saw revenue contract.
Now Teva hopes to change direction. The company's new CEO Richard Francis has rolled out Teva's strategic plan: the engine of growth will be innovative products, not generics and not biosimilars and even not enhanced generics.
Persistent identity problem
Since Copaxone was born, Teva has persistently had an image problem over its identity and whether it was a generic or innovative/branded drug company. Previous CEOs had different ideas about the right mix of the two types of drugs.
Ori Hershkovitz an external consultant for Cantor Brokerage said, "Teva has never really developed its own drugs in an organized way. It's difficult to be an innovator pharmaceutical company and you need to invest a lot of money on a lot of new products, knowing that most of them will fail, and do this again and again over time. Copaxone gave the company the money to do this but there was hesitation and that brought us to the current situation."
At the start of Schultz's term as CEO, Teva endured the bitter taste of failure for branded drug development with the development of NGF for treating pain, which had been developed with Regeneron and that certainly affected the company's desire to continue. Schultz worked towards selling innovative assets more than buying them in order to service the debt. "But today Teva has to do it and has to strengthen its innovative side in order to survive and justify its existence," insists Hershkovitz.
The new CEO believes that Teva is innovative and that this is a possible scenario and he has arrived with experience in this field. In his most recent position, although he was CEO of generic company Sandoz, prior to that he had a senior role at innovative drug development company Biogen. If Teva moves in this direction, it will compete with huge companies with thousands of employees in drug development and clinical trials as well as large marketing networks for drugs in different fields. Teva has already successfully done this with Copaxone and currently has a pipeline with several interesting branded products on the market. The question is whether it can transform occasional successes with a more methodical approach.
The huge potential in schitzophrenia
Following the strategic change by Francis, the status of Teva's Global R&D Division is expected to receive a major boost. Dr. Eric Hughes has been chosen to lead the division. He is a well-respected scientist in the field of infection diseases and immunology who was most recently Senior Vice President of Clinical Development and Translational Medicine at Vertex Pharmaceuticals and prior to that as Head of the Immunology, Hepatology & Dermatology Global Development Unit at Novartis. He told "Globes" that he is enthusiastic about Teva's existing assets and its development team, mainly in Israel and Australia.
From Hughes' point of view, Teva's initial weapons are the products already in the drug pipeline. The lead product currently on the US market is Austedo for treating involuntary movements (chorea) of Huntington's disease and which recorded sales of nearly $1 billion in the Us in 2022. Teva hopes to reach annual revenue of $2.5 billion for Austedo by expanding sales to Europe and other countries and its use for other involuntary movements, although this will require clinical trials. Analysts told "Globes" that they see this as an ambitious but achievable target for the product.
Efroni said, "Austedo is completely Teva's market. Its entry into Europe is expected to contribute to revenue and profit, and in Europe Teva is getting stronger commercially.
Hughes himself is especially excited about the approval received a few months ago and the upcoming launch of the Uzedy delayed-release drug for treating schizophrenia patients. This is a drug that Teva is developing with MedinCell, a version of Risperidone, one of the drugs commonly used to treat schizophrenia. The drug is given by injection once a month or two months, a regimen that greatly facilitates the treatment of patients and significantly reduces risk of repeated attacks. There are delayed-release versions of Risperidone already on the market, and Teva is entering a market whose size in 2022 was approximately $4 billion. It is difficult to convince patients to change an injection regimen that works, so Teva will mainly target patients who are not yet using long-term injections. It is expected to record initial annual revenue of several hundred million dollars, and possibly more, depending on the quality of its marketing.
The analysts are actually more enthusiastic about Teva's version of Olanzapine which is administered to schizophrenic patients that Risperidone cannot help. Hughes explains its advantage. "When using the delayed-release drug Olanzapine, there is a concern that the substance will accidentally enter the vein and cause serious side effects. Our product is injected under the skin and does not cause this phenomenon, so it is very competitive in the category. We aim for clinical results in 2025. When a clinical trial recruits patients quickly, it is often a good sign, and that's what we're seeing with this product."
Evercore analyst Umer Raffat, who has been following Teva for years, sees this product as a great opportunity for the Israeli pharmaceutical company. He warns that there is still some uncertainty but if it is proven to be free of side effects, Teva will be ready to storm the market within a few years.
The product that may boost Teva's value
Another Teva product that is arousing market interest is Anti TL1 A. The3 company is currently testing its efficacy in treating inflammatory bowel diseases such as colitis and Crohn's. US company Merck bought a similar product from Prometheus for $11 billion, and if Teva's product is evaluated in a similar way, it should boost Teva's value by about 50%, Hershkowitz says. "This product works using a different mechanism than the other products on the market. This means that it can work better, the same or less well. It all depends on the results," Hershkowitz explains.
Hershkovitz and Raffat both claim that if the product turns out to be successful, Teva will face a dilemma: sell it and thus substantially reduce the debt, or continue to Phase III trials, which means an investment of another $200-300 million before adding marketing costs. Today, Teva has marketing capabilities focused on neurology, and if it wants to market this product itself, it will have to build a new marketing network for inflammatory diseases. "I'm sure the lights stay on in Teva's management offices for long hours, when they discuss the question of what to do with this product," says Hershkowitz, "if it succeeds of course."
Another product, which is in early stage trials, is an antibody designed to prevent the negative effects of gluten in celiac patients. Teva, which is very confident about this, will invite celiac patients to a "challenge trial", in which they will eat gluten and be treated with the drug, in the hope that it will indeed meet the task.
"We are testing the drug both for patients who today keep their balance when they avoid gluten, and also with those who cannot keep their balance," says Hughes. "Our ambitious goal is that those who use the medicine will be able to eat whatever they want."
The challenge: To shake off old habits
One of the major acquisitions that Teva undertook in the past in the branded-drug sector was of cancer drug developer Cephalon, which provided the Israeli company with innovative products as well as drug development and marketing teams in the field. Although the patents of Cephalon's biggest products quickly expired, the company had accumulated enough experts to develop new products in the hot category of "integrating antibodies and drugs." The company develops antibodies that target specific receptors in cancer cells, and has two products in the pipeline.
The first product is an antibody to the CD48 receptor. When the drug is aimed directly at the receptor on the cancerous tumor, it is possible to achieve effectiveness even with low doses, while reducing toxicity to other organs. Teva has licensed the drug to Takeda. "We are already seeing success in clinical trials in patients who until now had no treatment," says Hughes.
Another product that Teva is developing itself works on the PD1 mechanism, which is also used in successful immunotherapy drugs Keytruda and Opdivo. Teva uses an antibody targeting the receptor to deliver a toxic drug to the tumor. "Keytruda is like the breaks, and we're like gas," says Hughes.
Where does Teva currently get its new products? "Most pharmaceutical companies develop about 50% of their products in-house and buy the rest from outside. "So do we," says Hughes. "The pipeline of products you see today, these are developments that have been in our incubator for years. In the areas of delayed release of drugs and of antibodies, we have very strong in-house development capabilities, and these technologies can also be applied to new products and new indications." However, analysts point out that most of Teva's pipeline today originates from products purchased from outside.
"Will Francis' plan based on innovation succeed? It depends on the success of the product for Crohn's and colitis, and on the additional products that the company will bring from the outside, that is, its ability to strengthen the business development team," says Hershkovitz. "Today the team has become accustomed to selling assets, they need to become excellent at locating good and cheap assets, and at putting together cooperation deals that will not require a high cash investment in the immediate term.
"They have an opportunity in the field of neurological and psychiatric illnesses. Despite recent successes in Alzheimer's, the big companies are avoiding it, and Teva is already operating in the field and has a targeted and successful marketing system. It's a big field with a lot of potential."
Teva also currently has a program to search for products in academia including a special program for cooperation with Israeli academia. "Today we have 30 collaborations with academic laboratories, including with Prof. Roni Dahan of the Weizmann Institute, who has developed a sophisticated mechanism for the targeted elimination of cancer cells," says Hughes.
Published by Globes, Israel business news - en.globes.co.il - on July 4, 2023.
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