Teva's generic horizon

The drugs that could pep up Teva's profit in 2004.

After discussing the prospects for Teva's takeover of Sicor in the first part of this review of Teva's 2004 outlook, IBI analyst Elah Alkalay turns to the company's generic growth engines. "In 2003, Andrx (Nasdaq:ADRX) received two FDA approvals for products included in an agreement with Teva. It received tentative approval for Ortho Tricyclen, which has $713 million in sales a year. Final approval is expected when the patent expires on March 26, 2004. Andrx also received final approval for Previfem, a generic version of Orth McNeil Pharmaceutical's Ortho Cyclen, developed together with Ortho Tricyclen." Ortho Tricyclen and Ortho Cyclen are oral contraceptives.

"Sales of Ortho Cyclen total $137 million a year, and there are already generic versions on the market. Andrx announced that despite the final approval, it would not launch immediately. Teva and Andrx are ready for production and marketing, apparently for a joint launch of both products in April. I once estimated that this business could contribute $80 million a year to Teva, once it builds a basket of products in this field. However, the contribution in 2004 will probably be marginal."

Alkalay lists the leading generic drugs in Teva's pipeline: GlaxoSmithKline's (NYSE; LSE:GSK) Wellbutrin and Zyban. Both use the same API: Bupropion. Wellbutrin, an anti-depressant, had $1.5 billion in sales in 2002. Zyban, used to stop smoking, is a relatively small-scale product, with $130 million in sales a year. An extensive marketing campaign for Zyban was recently launched in Israel.

"A few months ago, Teva announced that it had signed a profit-sharing agreement with Andrx and Impax Laboratories (Nasdaq:IPXL). Under the agreement, the companies will share profits derived from these products during the exclusivity period. We have the impression that if Impax obtains final FDA approval, Andrx will concede its exclusivity in favor of profit-sharing. At the same time, Andrx committed sharing some profits with Impax and Teva, even if it succeeds in being the first to launch. I believe that the likeliest scenario is that Impax will receive final FDA approval in the coming weeks, and Teva will immediately begin marketing its product.

"The joint sales will contribute $300 million a year to the companies. The contribution to Teva's gross profit will be limited to only $80 million a year, both because of competition and the many marketing agreements."

This is not a negligible amount, but Teva's preliminary estimates were much higher when it signed the cooperation agreement covering several drugs with Impax two and a half years ago. The problem is that there isn’t any real exclusivity in this market. In addition to the agreement with Andrx, Watson Pharmaceuticals (NYSE:WPI) will also market a generic version of the ethical drug.

"Watson Pharmaceuticals has a marketing agreement with GlaxoSmithKline, under which it will market a generic version of the product when the first generic maker enters the market, which means that the exclusivity period will be shared among four generic drug makers," says Alkalay. "Another key factor is that the delay in launching a generic version enabled the ethical drug maker to strengthen its alternative product, Wellbutrin XL, which is basically a delayed release product."

Generic Taxol is another product that could be significant for Teva during 2004. "Taxol is a chemotherapy treatment produced by Bristol-Myers-Squibb (NYSE:BMY)," says Alkalay. "Taxol's EU patents are due to expire during the first quarter of 2004, and I assume that Teva, through PCH Pharmachemie Netherlands, will become a major player in this market in Europe. Bristol-Myers sales of Taxol in Europe totaled $834 million in 2003."

Sales of generic analgesic OxyContin will also contribute to Teva's revenue. Alkalay estimates that sales of ethical OxyContin total $1.4 billion a year, although some analysts estimate sales at $1.9 billion. "Teva was probably the first company to file for a Paragraph IV patent certification for 80-mg dosage OxyContin. Sales of 80-mg OxyContil total $600 million. We won't know for sure until the FDA grants approval. In any event, Endo Pharmaceuticals (Nasdaq:ENDP) was the first company to file at 10, 20, and 40-mg dosages. Four competitors will probably enter the market: Teva, Endo, Impax and Roxane Laboratories, after the US District Court for the Southern District of New York ruled that Purdue Fredrick's three patents to ethical OxyContin were invalid.

"Purdue Fredrick recently petitioned the FDA to restrict its final approval for generic OxContin until the makers of the generic versions adopt a reasonable risk management plan, since OxyContin can become addictive. Purdue Fredrick also announced that it would appeal against the US District Court ruling that its patents were invalid because of the company's irregular actions. Purdue Fredrick's announcement claims that in 70% of similar appeals, the courts have ruled in favor of the petitioner."

The question is, when will Teva launch its generic OxyContin? "The exclusivity period will begin when marketing starts or when the appeals process is finished, so Teva has plenty of freedom of action," says Alkalay. "In any case, I assume that Teva won't take unnecessary risks and will wait until the preliminary process is over before launching its product. Estimated sales are $110 million during the exclusivity period, falling to $90 million a year after the market is opened to wider competition."

Teva is also developing generic Rebetol (ribavarin) for treating chronic Hepatitis B and C. "Schering-Plough (NYSE:SGP) has $800 million in sales a year for ethical Rebetol," notes Alkalay. "The US District Court for the Central District of California ruled in favor of the generic makers for this drug, but the FDA has not yet granted final approval. Several analysts believe that Teva will not be the first to apply and will therefore be barred from entering the market at least until the second half of 2004. In any event, there are assessments that the FDA will rule that more than one company will be eligible for exclusivity."

Another important product for Teva is generic Fosamax. "Merck and Co. (NYSE:MRK) makes Fosamax, the leading treatment for osteoporosis," says Alkalay. "The courts ruled against Teva, in favor of Merck, for Teva's once-a-day formulation, so even if Teva wins the court case in the coming months on the remaining Fosamax patents, for the 70-mg once-a-week formulation, it will not be able to launch the product before 2008."

Another drug likely to produce long-term profit for Teva is a generic version of Pfizer's (NYSE:PFE) Neurontin, an epilepsy treatment that has $2 billion in sales a year. "A number of companies have applied to the FDA for ANDA with a Paragraph 4 certification, and most received approvable status. They are Purepac Pharmaceuticals, Eon Labs (Nasdaq:ELAB), and Ivax (NYSE:IVX), which received FDA approval as early as April 2002. Teva received FDA approval in July 2002.Ivax believed that it was the first company to file an application with the FDA for some dosages. Alpharma (NYSE; XETRA:ALO) was the first company to file an application for a capsule formulation, and announced in September 2003 that it had received final FDA approval. Teva expects to supply the API to most of the generic Neurontin markers, and therefore expects to benefit from sales at the outset. Despite the FDA approvals, the legal proceedings haven’t been concluded yet. To the best of my understanding, a court date has not yet been set.

"In addition to these products, Teva has applied to the FDA for ANDA with a Paragraph 4 certification for a generic version of Eli Lilly's (NYSE:LLY) Zyprexa, a schizophrenia treatment, which has $2.8 billion in sales in the US a year. Besides Teva, Ivax, and Dr Reddy's Laboratories (NYSE; XETRA:RDY; BSE:REDY) have also filed Paragraph 4 applications. The courts consolidated Eli Lilly's lawsuits against the three companies, and a court date has been set for January 2004.Ivax was apparently the first company to file an application. It's important to note that Zyprexa is under review on suspicion of increasing risks to diabetes patients."

Other products that could be important for Teva's portfolio include generic versions of Bristol-Myers high blood pressure treatment Monopril, which has annual sales estimated at $200 million. Teva was apparently the first company to file an application. As soon as it obtains FDA approval, it will market the generic drug exclusively for six months. Another blood pressure drug in Teva's sights is Pfizer's Accupril, which has $430 million in annual sales. Teva has received final marketing approval for its generic version; Pfizer's appeal is scheduled to be heard during the first quarter of 2004.

This is the second part of a two-part article.

Published by Globes [online] - www.globes.co.il - on January 20, 2004

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