Teva sharpens focus but deal news lacking

Teva's first attempts to extricate itself from its muddle have become clear. The Israel-based group will cease R&D work in oncology and women’s health in a move that it forecasts will save $150m in 2015 alone, some of which will be redirected to core research in central nervous system and respiratory drugs.

This news did not appear to suit investors, however, with US-listed shares falling 3% to $53.47 yesterday following the announcement. With expectations of a transformational deal so high, the move perhaps reflects disappointment that a major strategy announcement did not contain any M&A news.

Clearing the underbrush

Teva said it will eliminate 14 unspecified programmes as part of the brush-clearing, which will cut a total of $550m in costs 2015-2017. Without specifying amounts, the group said some will go into CNS and respiratory initiatives while some will simply count toward ongoing cost-cutting initiatives – a total of $2bn in savings has been promised.

As Teva already has a presence in CNS with Copaxone and Nuvigil and in respiratory with inhaled corticosteroids and beta agonists, concentrating on those therapeutic areas is a logical decision. However, after Copaxone, its biggest selling drug in 2013 was in oncology – the alkylating agent Treanda, a drug it picked up with the takeout of Cephalon in 2011 – so it is obviously backing away from an area where it has acquired some experience.

Chief executive Erez Vigodman emphasised that the company is anticipating 30 product launches between now and 2020, and 20 will be in CNS and respiratory. Among the launches could be reslizumab, a treatment for severe asthma also snared in the Cephalon buy that recently reported phase III data at the European Respiratory Society meeting.

The company estimates $4bn in new revenue on a risk-adjusted basis by 2020, a prediction not even sell-side analysts are willing to agree with – according to EvaluatePharma’s consensus forecasts, the company’s worldwide revenues will stall at $20bn this year.

This impasse is not helped by questions over the longevity of the Copaxone franchise. Teva’s defence has been helped by a switching strategy that has seen 55% of prescriptions switched to a three-times-weekly from a once-daily formulation.

The patent for the once-daily will expire next year regardless of the outcome of legal proceedings that will reach the US Supreme Court next week – it is only a matter of whether the September 2015 patent date stands or falls earlier thanks to court decisions.

Pressure for deals

Thus the desire for a transformational deal, at least among investors. Last week saw rumours of a deal to buy Mylan, something that has yet to become more than speculation.

Mr Vigodman and his executive team have been more circumspect about M&A, suggesting in meetings with analysts that any buy would be in the $1bn-$3bn range, would be technology-driven, and would either involve emerging markets or the acquisition of a branded CNS drug.

As for big deals, Mr Vigodman has stressed that integration is a problem, especially for a company like Teva that has a mix of branded and generic drugs. The Cephalon buy is a case in point – as a result of that, Teva has an ongoing partnership over the heart-disease project CEP-41750/ MPC-150-IM with the Australian stem cell specialist Mesoblast. There are bound to be renewed questions over that relationship now that Teva’s cull has been announced.

Mr Vigodman and his team say they are focusing inside Teva rather than out at a time when it seems all big pharma companies are being goaded into M&A, often at unbelievable valuations. Seeking organic growth and targeted deals may be a wise course for a company confident in its pipeline; the question for Teva is where it can find growth if big M&A is not on the agenda.

To contact the writer of this story email Jonathan Gardner in London at [email protected] or follow @JonEPVantage on Twitter

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