What will Teva hold, what will it let go?

Teva CEO Jeremy Levin's strategic plan for Teva will be fateful for a string of Israeli biomed development companies.

Later this week, Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) president and CEO Jeremy Levin will announce the generic giant's strategic plan. Among other things, he will announce the fields in which the company will focus its innovative activity, which will probably determine the company's involvement in the Israeli life sciences companies in which it is invested.

Levin has previously said that Teva will be involved in Israel's life sciences industry, but it is unclear whether this will include many investments and collaborations as was the case under former CEO Israel Makov as part of the innovative ventures division run by VP Dr. Aharon Schwartz. At the moment, it seems that the company will not opt for this activity, but will examine Israeli ventures against products from the rest of the world. The question is, what will Teva's position be on its current investments?

The decision about these investments will presumably be based on the fields in which Teva decides to focus. We believe that the company will not continue its active relationships with most of the companies in which it invested, but it will not actively eliminate these relationships either, but will seek the right time to exit them.

The case of Proteologics Ltd. (TASE: PRTL) is an excellent example of the possible future of these investments. Teva invested in Proteologics and signed an R&D agreement with it, but Levin and his predecessor Shlomo Yanai never took an active role in the company. Teva passively held Proteologics shares until Proteologics recently found a buyer for Teva's stake.

Teva is currently invested in MGVS Multigene Vascular Systems Ltd., Impulse Dynamics Ltd., Aposense Ltd. (TASE: APOS), BiolineRX Ltd. (Nasdaq: BLRX); TASE:BLRX), and Clal Biotechnology Industries Ltd. (TASE: CBI), as well as in several Clal Biotech portfolio companies.

Most of these companies have become used to operating without Teva's support. Only MGVS, in which DFJ Tamir Fishman Ventures Ltd. (TASE: TFVC) owns 8.5%, built a joint development agreement with Teva and ratified it in January 2012, after Levin's appointment was announced, but before his took up office. It will be hard for MGVS to continue to operate without a partner.

Can Blavatnik finance full development?

Clal Biotech is at an interesting crossroads. Teva not only owns 14% of the company, but has also invested in and financed most of Clal Biotech's advanced projects, and over the years, the two companies have had a symbiotic relationship. From this perspective, the transfer of control of Clal Biotech to Len Blavatnik's Access Industries Inc. worked in Clal Biotech's favor, because if it was now jointly controlled by IDB Holding Corp. Ltd. (TASE:IDBH) and Teva, it would face the uncertainties currently characterizing the other companies Teva has invested in.

Blavatnik has deep enough pockets for Clal Biotech (in addition to its NIS 160 million in cash at the end of September), and Access Industries even has a life sciences arm. But he has no company that can close large financing deals for development, with commitment to marketing and advance payments, that Teva has made up to now in Clal Biotech's leading portfolio companies.

Gamida Cell Ltd., a subsidiary of Clal Biotech and Elbit Medical Technologies Ltd. (TASE:EMTC), has already announced that it is seeking another marketing partner for the leading product of a joint venture in which Teva owns 50%. In other words, it already clear that Teva has little interest in the venture, but it has committed to financing half of the production and marketing costs as part of the joint venture. A positive scenario for Gamida Cell would be to find a partner which would also acquire Teva's stake in the company. If Gamida Cell wants to market its product independently, it will have to spend substantial amounts of money, and it is not certain that Teva would agree to finance this.

CureTech Ltd., in which Clal Biotech owns a 12% stake, is considered to be the company with the best chance of further development under Teva. CureTech's oncology product is considered promising, and Teva already has oncology activity. CureTech's product is well advanced and is quite similar to successful products developed by Bristol-Myers Squibb Inc. (NYSE: BMY) when Levin served as its VP of business development. CureTech is low risk, and if Levin unexpectedly decides not to focus on oncology, he may decide to keep the investment in apparently promising products.

Two other Clal Biotech portfolio companies are diabetes treatment developer Andromeda Biotech Ltd. and wound treatment developer MediWound Ltd. According to the rumor mill, MediWound, which has already registered its products for sale in Europe, interests Teva less, because it has no innovative wound treatment activity. However, since MediWound's product is already certified for marketing and has achieved good clinical results, there is a good chance that the company will find another partner.

As for Andromeda Biotech, Teva does not focus on diabetes, but Andromeda Biotech tackles the disease's inflammatory aspect, and if Teva decides to focus on anti-inflammatory treatments, it may be interested in the product. Andromeda Biotech is carrying out a Phase III clinical trial on the product, and Teva may keep the investment.

Product quality will be decisive

As for Teva's stake in Clal Biotech, it seems that Teva will keep the stake as a financial investment for the time being. To date, Teva has recorded a return of hundreds of percent on its investment in the company, but Clal Biotech may prefer to diversify its investors, and not rely on Teva's marketing networks. Levin is doing everything he can to explain to investors that Teva cannot currently be a strong developer and marketer of innovative products in many fields simultaneously. Ultimately, the answer to the question whether other companies, more suited to the task than Teva, will be found to sell these products will be decided by the quality of the products themselves.

Published by Globes [online], Israel business news - www.globes-online.com - on December 9, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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