Nevertheless, Teva clearly wants to believe that it is a company that can work with both innovative products and generics, even if it is switching from applying a generic mindset to brands (minimise risk and cost) to applying a branded mindset to generics (try to differentiate). In this context, Dr Levin and his R&D director, Michael Hayden, presented the concept of NTEs, or New Therapeutic Entities, which are what the rest of the industry calls supergenerics, ie old molecules sold in new ways that give them some differentiation and maybe even a bit of IP. Notwithstanding that NTEs are hardly a new concept, Drs Levin and Hayden claimed that Teva was uniquely capable of producing such products on an industrial scale and that it would be bringing approximately 10-15 of them a year into development. Three have already been identified: a HIV triple combo pill, a schizophrenia therapy combined with a weight-loss agent, and the transplant drug Cellcept used to treat lupus. Although it is quite easy to be dismissive of NTEs as a gimmicky way of presenting something that most other generic companies (and an awful lot of smaller specialty pharmacy companies) are already working on, it’s not actually such a stupid idea. The important element is to come up with something that payers will actually attach value to – a lot easier to do in the US (and the emerging markets) than in Europe. Of the three projects listed above, for instance, only the third is likely to attract premium pricing in Europe and it is by far the hardest to develop, since it will require full-scale clinical trials to demonstrate efficacy.
One of the more surprising things to come out of the investor day was the suggestion that Teva is going to scale back significantly its ambitions in biosimilars. We have remarked in previous notes on the company that Teva has been better at talking about biosimilars than actually delivering them, with all its current success coming from products that were acquired rather than developed in house. However, Dr Levin seemed to be actively anti biosimilars. With Dr Hayden having presented data claiming to demonstrate that one of the ‘generic’ versions of Copaxone (the manufacturer of which was not revealed) had a totally different gene activation profile to Teva’s product, Dr Levin said that he believed that the same was likely to be true for biosimilars in general and that this made them unsuitable for use in chronic therapies. As a consequence, Teva would focus only on products designed for acute use. He nevertheless denied that the company’s rituximab programme, being carried out with Lonza, was on hold, although he didn’t say why it wasn’t currently progressing. While this could just be an excuse to justify why Teva is behind its competitors, his conviction sounded genuine, which is a bit odd when you consider that there are plenty of big pharma companies that are quite happy to develop biosimilars and that Sandoz (for instance) believes that it can come up with biosimilar products that are totally indistinguishable from the originator drug. Be that as it may, we no longer expect Teva to develop many – or possibly any – biosimilars beyond those that are already known to be fairly advanced in trials. And probably not many other biologics either.
From a therapeutic perspective, new Teva will be much more focused, which clearly makes sense. Key areas will be CNS (building on the success of Copaxone and Azilect) and respiratory, with oncology, women’s health and biologics receiving more selective investment. Teva has already cut a number of its previous clinical programmes and has replaced them with others that fit more closely with its new objectives, such that half of its pipeline is now in its top two therapeutic categories or else NTEs. Laquinimod also got star billing, despite its rather disappointing trial results to date, and Teva confirmed that it will be starting studies looking at laquinimod as a combination product not only with Copaxone but also with other MS therapies. The CNS franchise will also be extended into new areas such as Huntingdon’s disease and pain. In this context, Dr Levin presented the concept of ‘constellations’ of products in the same therapeutic area and announced that Teva had in-licensed XEN402, a novel therapy for pain treatment, from the US company Xenon. More deals are likely to follow, as BD is expected to be focused on filling gaps in the pipeline and in the company’s geographic presence, as well as adding OTC products to the portfolio owned by Teva’s joint venture with Proctor and Gamble, PGT (see later).
Despite Dr Levin having asked the audience to lift up their eyes and look further afield than the US – and also flying in a number of executives from around the world – only a very small percentage of the presentation was actually dedicated to markets outside North America. Or to generics, for that matter. Of the three hours, Jeremy took up one with his big-picture view of strategy, a second was dedicated to R&D and Global Brands and the final hour got split between Generics (North America, Europe and ROW), Production (all about cost-cutting – there was a definite reluctance to answer questions about the extent to which Teva is actually able to supply the products that it makes at the moment) and Finance (savings from cost-cutting and planned use of free cash flow). We assume that this is a fair reflection of how Teva’s management is prioritising its time: first, brands in North America, second. brands elsewhere and third, generics. Since the investor day, Teva has announced a tie-up with Handok in South Korea, demonstrating how it intends to plug geographic gaps with alliances, and even though this wasn’t really mentioned, we still assume that part of the growth plan is to in-license patented products for the ex-US markets. In Europe, profitable growth is the mantra. Rob Koremans reported that Teva has cancelled more than 1,000 marketing authorisations to date, is no longer chasing every tender in Germany and has refocused the development pipeline on more complex products. In North America, his counterpart Alan Oberman reported that Teva would continue to exploit its market-leading portfolio of first-to-file opportunities but would otherwise follow Sandoz and Mylan (he didn’t say that bit) and focus mostly on harder to make products. It would also try to use its market position to raise prices in the base portfolio and hence improve gross margins in the generic division, which are by far the lowest in the Teva group at sub-50%. It will be interesting to see how the last part of this strategy goes. In theory, it should be possible because Teva has a huge market share and the wholesalers would be happy to see higher prices, but there are still plenty of companies out there that see price as their main competitive advantage and so Teva risks losing some market share along the way.
OTC seems to come loosely under brands, since it is being used as a way to improve the company’s relationship with pharmacists in the emerging markets. However, for an area that is theoretically a high priority, very little was said about it. This could be because P&G is the 51% shareholder and is largely responsible for managing PGT (no PGT management were present) but in any case, we consider that the jury is still out on the PGT project. It was set up because Teva wanted P&G’s brand marketing expertise and P&G wanted Teva’s lean manufacturing and presence in some of the CEE and Latam markets, but the brand portfolio that it has to work with is extremely weak. The three top names listed in the handout were Vicks nasal spray (P&G, a respectable brand that is now being rolled out across CEE/CIS with heavy TV advertising and seems to be getting traction in Russia at least), Vibovit (Teva, a multivitamin developed by Polfa Kutno in Poland and currently being launched in other CEE markets with a huge amount of marketing spend but little visible success in a highly competitive arena) and ratiopharm (the umbrella brand of the ratiopharm OTC portfolio, historically sold only in Germany and possibly Austria). Vicks may have the potential to become a global brand but we are highly sceptical about the other products and although Dr Levin reported that sales of PGT were expected to be up 11% in 2012/13, he didn’t say what was happening to profits, which we suspect are going in the other direction thanks to the massive increase in marketing spend needed to drive sales in new territories.
In summary, then, there were few real surprises at the Teva investor day, which is itself not really so surprising. Dr Levin has to work with what he’s got and we expect to see a gradual reshaping of Teva to become a company dominated by brands, be they generic or innovative. Whether the company eventually chooses to de-merge the remaining ‘generic’ part of the business is a separate issue. A lot of emphasis was put on the benefits of having both types of R&D in order to come up with NTEs and it is true that in many of the non-US markets the same sales force can sell brands and generics, but it is going to be very hard to raise margins in the generic business to anywhere near those of the branded divisions and as the brands get bigger and the generics smaller, the argument for splitting the company up may become more compelling. For now, though, investors are just going to have to show a little patience.