Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) broke a number of records in 2005, all of which were linked to billion-dollar thresholds. For example, for the first time in the company’s history, cash flow from current operations, generic drug sales in Europe, and sales of active pharmaceutical ingredients (APIs), all exceeded this symbolic, but still important threshold. Another item - annual sales of the company’s ethical multiple sclerosis (MS) treatment Copaxone - rose to $1.2 billion, officially making this drug a blockbuster for a company generally known as a maker of generic drugs. Teva president and CEO Israel Makov recently said, “Copaxone is our first blockbuster, but it won’t be our last.”
So, what are Teva’s intentions in the ethical drug field? Does it plan in the long term to compete against Pfizer (NYSE:PFE; LSE:PFZ) and similar companies, and does it think that it can reach that size? Does Teva intend to be more than merely the world’s largest generic pharmaceutical company? Why has Teva’s ethical drug division launched only three drugs in its 25 years of existence? What does Teva have in its ethical drug pipeline with the potential of becoming a blockbuster, a drug with over $1 billion in sales a year?
“On the basis of what we currently have in the pipeline and market statistics, we believe that, beginning in 2010, we can launch a new proprietary R&D product every year,” Teva VP global innovative R&D Dr. Irit Pinchasi told “Globes”. “That’s an amazing change, compared with the rate we’ve had until now, given that we launched Copaxone in 1996 and Agilent (for the treatment of Parkinson’s disease) eight years later. We hope to submit at least one new drug a year to the US Food and Drug Administration (FDA) for approval. If all goes according to plan, these drugs will be approved within a year or two.”
Pinchasi says these products should at least be in Phase II clinical trials during the first half of 2006 to be ready for marketing from 2010 on.
“Globes”: How many of these drugs to be launched after 2010 will be blockbusters? The only one you’ve had so far is Copaxone.
Pinchasi: “It’s hard for us to know, because these processes are unpredictable, but I’d say that some of the drugs now in Phase II clinical trials, or soon to begin them, have the potential to be blockbusters. Don’t forget that we were surprised by Copaxone. We didn’t think it would be a blockbuster, because the market for MS treatments barely existed before the launch. There’s now talk that Copaxone sale will reach $5 billion over the next two years. This can happen when there is a really good drug for a particular disease; it expands the market.”
Pinchasi prefers not bet on what the next blockbuster will be, but mentioned one possible candidate: a treatment for Lupus that is now undergoing Phase II clinical trials. She says she mentions this drug because no new breakthrough treatment for Lupus has been put on the market in 40 years. “Hundreds of thousands of people a year suffer from Lupus, with its skin and tissue damage, and which, in extreme cases, causes kidney failure and damage to the central nervous system. The market for this drug could be larger than treatments for multiple sclerosis. Current treatments for Lupus are mostly steroids, which are effective, but toxic.”
Teva, in contrast to other drug developers, is not involved in drug discovery or diagnostics, but only in therapeutics. Universities, research institutes and hospitals, mostly in Israel, discover the molecules. “Teva receives 150 to 180 proposals about molecules and development concepts from Israeli universities every year,” says Pinchasi. “At the most, five of these ideas reach the next stage, including pre-clinical trials. If all goes well, we initiate clinical trials. The drug development cost for companies without our ties to Israeli institutions is $800 million to $1 billion. Our costs are four to six times less, because we aren’t involved in discovery.”
What are the most common proposals?
“The past decade was the ‘decade of the brain’. Money was channeled to drugs for the central nervous system and neurological disorders. However, there were few breakthroughs, certainly not in commeasurable with the amount of money spent. There is now a move towards drugs for cancer and there are a lot of proposals for autoimmune disease therapies. Cancer is a fairly new field for us, which developed through our acquisition of Ivax Corporation.”
Teva recently completed its acquisition of Ivax for $8 .6 billion, and is now integrating the company. Needless to say, the acquisition has brought change to the company, including at the proprietary R&D level. “Before the acquisition, we had 500 employees, including 280 Israelis. It was close, but we had an Israeli majority,” says Pinchasi. “Now, for the first time, most of our division’s employees aren’t Israeli. We acquired 270 more employees through Ivax, mostly in the US and Hungary, and even if it’s not certain that all of them will stay, we now have almost 800 employees. This is the first time in the history of the division that most of its employees aren’t Israeli. Teva’s trend towards globalization has reached us too.”
This happened long ago at Teva. The company has 26,000 employees, including 11,500 through its acquisition of Ivax, of whom 4,600 are in Israel.
What drug development did Teva get from Ivax? Three cancer treatments undergoing Phase II clinical trials. “The Ivax Drug Research Institute in Budapest had ten products in the pre-clinical stage, and we jointly decided to focus on five of them. We also decided to concentrate on three or four molecules being developed by Ivax’s subsidiaries in Miami,” says Pinchasi. “We also obtained from Ivax multiple sclerosis treatment, called Laquinimod,. We have a licensing agreement with Sweden’s Active Biotech AB (SAX:ACTI) for Laquinimod. This shows that we now have quite a few drugs in the pipeline that are not based on Israeli science.”
Is this the direction? Is the development of molecules in Israel finished?
“Certainly not. I don’t know how, but every year we receive the same 150-180 molecules for examination. There’s still no formulated strategy here, but only a general decision to develop parallel ties with both Israeli and foreign institutions. We have to screen drugs not only at the Israeli level, but at the global level if we really want to achieve steady growth and launch a product every year beginning in 2010.”
Teva also cooperates with drug development companies such as CureTech Ltd. and Gamida Cell Ltd., and has invested in other companies.
Teva CFO Dan Suesskind once said that Teva had “a kind of informal first refusal rights” on ideas coming out of academe. Pinchasi says, “I don’t see this as first refusal rights. I think that what happens in practice is that application companies prefer working with us. They’ve learned our value in helping the team and providing direction, without which it’s often easy to go astray. We now know how to develop a drug, what the intellectual property level should be, the market potential, and what the advantage will be.”
Pinchasi cites Rasagiline (a treatment for Parkinson’s disease, marketed as Azilect/Agilect) as an example. She says that when Prof. Moussa Youdim and Prof. John Finberg of the Technion - Israel Institute of Technology came with the molecule, it was not possible to develop a drug. The molecule has two isomers (a molecule made up of the same atoms, but with different atomic arrangements), so Teva cleaned up the molecule, separating the isomers to create an active pharmaceutical ingredient (API), which it patented. “Copaxone, which came from the Weizmann Institute of Science, also wasn’t initially focused, and couldn’t be developed. It took us three or four years to understand the production process and control all the substances, because Copaxone is a compound. This could not be done without an industrial company, not just because of the money, but because we know how to characterize the market.”
Dr. Pinchasi received her Ph.D. in neuron-biochemistry from Tel Aviv University, and Teva was her first non-academic appointment. She has been at the company for 20 years, initially as a project manager. She has served as VP global innovative R&D for the past four years.
Teva has launched three drugs during its 25 years in the ethical pharmaceuticals business: one blockbuster, Copaxone; Agilect (rasagiline); and an alpha-vitamin D3, which originated at the Weizmann Institute. “It isn’t a great drug, but compared with our investment in R&D, it generates handsome sales of $20 million a year.”
Teva hopes to demonstrate that Agilect does not only treat the symptoms of Parkinson’s disease but also modifies the disease’s development. If it does, Agilect could become a blockbuster; if it does not, it could still have hundreds of millions of dollars in annual sales.
The FDA has repeatedly delayed approval of Agilect, not because of problems with the drug or its profile, but because the FDA is overly cautious these days. “We had hoped to obtain FDA approval after a year, but it didn’t happen,” says Pinchasi. “All working assumptions about how long the FDA need to approve a drug have changed in the wake of recent incidents.”
Does Teva see itself as a possible future competitor of Pfizer and other large companies that launch five new drugs a year, every year?
“We don’t plan on becoming too big for our boots. Maybe it’ll happen long after I’ve retired. But seriously, we’re satisfied with being a mid-sized company. We’re building our future on generics, with ethical drugs and biopharmaceuticals playing supporting roles. To become a Pfizer you have to invest huge amounts in R&D for ethical drugs, and I don’t see Teva doing that. I can’t even imagine such a leap, at least in the foreseeable future. We’re less muscular in terms of R&D budgets, so we have to be wiser.”
What noteworthy failures can you remember over the years?
“Etilevodopa, a hoped-for Parkinson’s disease treatment, failed in 2003. It succeeded in Phase II clinical trials, but failed in Phase III (i.e. it was no better than Levodopa). Failure is quite unpleasant; it means a loss of time and money. Oral Copaxone was another noteworthy failure. That was a somewhat different case. It’s sometimes necessary to take a big risk to win a possible extraordinary success, which is what happened when we decided to leapfrog Phase II trials and go straight to Phase III. This was a calculated, but one-time, risk that we don’t recommend as a development method.”
In conclusion, what will happen when Teva’s ethical drug patents are challenged? After all, you’ve made a career of challenging patents.
“That will be interesting, no? We’re now trying to learn what you have to do to make things hard for generic drug makers. That’s part of Teva’s synergy: study, change patterns of thinking, and find weaknesses. We’ll do whatever we can to prevent it [challenging patents]. After, all we know better than anyone how to challenge patents, but there’s no guarantee we’ll succeed. Yes, there are quite a few companies that would like to turn the tables on us, and challenge our patents.”
Even after 30 years, Copaxone continues to surprise us
Pinchasi says, “Copaxone is a fascinating drug. Even after 30 years after being discovered, Copaxone continues to surprise us. Its potential is hard to believe.”
NOTE: A new study conducted by Teva in recent months showed that a higher dose of Copaxone had “promising results in the treatment of patients with relapsing-remitting multiple sclerosis. A nine-month, randomized, double-blind, parallel-group Phase II study of 90 patients comparing a 40 mg dose of Copaxone to the currently approved 20 mg dose showed a 38% greater reduction in mean cumulative number of gadolinium (Gd)-enhancing lesions as measured by magnetic resonance images (MRI) of the brain in patients taking the higher dose compared with those taking the 20 mg dose. In addition, patients taking Copaxone 40 mg experienced a reduced mean on-trial relapse rate of 77% when compared to annual relapse rate prior to entry, as compared to 62% with Copaxone 20 mg.”
In the press release on the study, Makov said, “Following these results, we are planning to conduct a large-scale Phase III study designed to confirm the higher efficacy of Copaxone with the increased dose. The Phase III study is expected to be launched in the second half of 2006.”
Published by Globes [online], Israel business news - www.globes.co.il - on April 10, 2006
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