Teva feeling effects of hybrid model

It has been an intriguing year so far for Teva. Shares in the Israeli group hit a record high of $64.54 in March, valuing the company at a massive $60bn, far higher than the likes of Bristol-Myers Squibb, Eli Lilly and Amgen. Gains were driven by a bullish outlook issued by the company and winning the race to acquire key European generics player Ratiopharm for $5bn.

However, the last few months have seen quite a dramatic sell-off with Teva’s shares falling 25% since that record high to a 12-month low yesterday of $48.44. While profit-taking is likely to be a key driver in these declines, so too is increasing nervousness over the threat posed to its biggest single growth driver, MS drug Copaxone, by generics and new entrants to the MS market. In a classic case of the hunter becoming the hunted, could recent events make Teva think again about its commitment to deriving 30% of revenues from branded products?

Quick out the blocks

Back in January, Teva issued some pretty impressive guidance for sales and earnings growth out to 2015, significantly higher figures than even the most bullish of analysts had been predicting (Teva's bullish forecast enhances generics outlook, January 8, 2010).

While global generics market growth over the next five years and new opportunities such as biosimilars were key drivers in Teva’s outlook, a significant amount of growth still had to come from major acquisitions - the company duly followed up by securing Ratiopharm to significantly enhance its presence in Europe (Teva triumphs in 'must-win' battle for Ratiopharm, March 18, 2010).

All the while, Teva continued to license new drug candidates to bolster a growing pipeline of around 25 novel products, most high-profile of which was the potential $334m deal it struck with Mersana Therapeutics for a pre-clinical oncology asset, novel fumagillin analogue XMT-1107 (Mersana seals chunky pre-clinical deal with Teva, April 14, 2010).

Indeed, Teva is increasingly keen to be regarded as a partner of choice, gauging by recent comments one senior executive made at the Euro-Biotech Forum last month, In Vivo Blog reported earlier this month.

However, given Teva’s already high exposure to the future success of Copaxone, the question is how far the balance of its portfolio and revenues should be tipped in favour of branded products.

Brakes on

While Teva’s shares started to understandably slide after hitting such impressive highs, the declines accelerated in June when Novartis’ new oral MS drug, Gilenia, received a ringing endorsement from an FDA advisory committee (Gilenia clears major regulatory hurdle with surprising ease, June 11, 2010).

Assuming Gilenia gains formal approval in September, the drug is now seen as a game changer in the MS market and a major threat to all existing MS drugs, including Copaxone. Meanwhile, Merck KGaA’s oral MS pill, cladribine, is back on regulatory track, having this week been granted a six-month priority review period, meaning potential approval in the US by the end of the year.

So while competition to Copaxone looks set to increase significantly next year, Teva received a double whammy late last week when the FDA issued a surprise approval for a generic version of Sanofi-Aventis’ Lovenox, similar to Copaxone in being a complex large molecule which has not been fully characterised (What a moment for Momenta, July 26, 2010).

As previously highlighted by EP Vantage, approval of a copycat version of Lovenox increases the generic threat to Copaxone. Approval looks more feasible now in early 2011 when the 30-month stay on generic approval expires, three years ahead of patent expiry in 2014. This would have a dramatic impact on the drug and company valuation.

Although Copaxone is somewhat unique – estimated sales this year of $2.54bn will account for 16% of total group revenues at $16bn – and possibly freakish within Teva’s product portfolio, the question is whether the company wants to end up in a similar position in future years when its prospects are so entwined with one drug.

After all, even the big pharma companies, which Teva is potentially morphing into by trying to be all things to all men, are increasingly keen to reduce their reliance on one or two blockbuster products (Which big pharma remains hostage to blockbuster fortune?, July 22, 2010).

Recent events could make Teva pause for thought in how far it goes down the hybrid generics-branded path.

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