At the end of June, the Renaissance Zurich Hotel will host the Biosimilars 2006 conference. Biosimilars are generic versions of ethical biotechnology products. The introduction of generic biotechnology treatments is not the same as generic versions of ethical pharmaceuticals. When patents on biotechnology drugs begin to expire at the end of this year, the rush for biotechnology generics will begin.
The problem is that this won’t be easy, because there is no organized and regulated way for a biotechnology generic to compete against an ethical drug in the way that exists in pharmaceuticals. There are already signs of a start in Europe, but there is nothing in the US at all. It should also be borne in mind that, as in every business dominated by large companies that are liable to be adversely affected by change and innovation, biotechnology leaders such as Amgen Inc. (Nasdaq:AMGN) and Genentech Inc. (NYSE:DNA) are lobbying the authorities to postpone the evil day.
One claim raised is that biotechnology-based drugs cannot be duplicated like pharmaceutical drugs, so the concept of “biotechnology generics” cannot exist. However, it is obvious to everyone that exclusivity cannot last forever, and that a gigantic market will eventually develop for biotechnology generics.
It is estimated that at least two or three years will pass before generic biotechnology procedures are put into law and regulations. Meanwhile, the industry is gearing up for the day after, and each and every product has to be examined to see how the authorities consider it. The biotechnology industry's aggregate turnover is currently 9-10% of the turnover of the pharmaceutical industry; in other words, about $52 billion. This figure is expected to rise to $94 billion by 2010.
I was pleased to learn that Teva VP and senior director for global biogenerics Suzanne Sensabaugh will speak at Biosimilars 2006. She will talk about ways to launch biogeneric products onto the market, how to maintain quality during production and marketing, and the standing and strength of China and India compared with the biotechnology and biosimilar industries in the West. I was pleased to see that Sensabaugh was given a prime place at the conference, because market source claim that Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) lags behind the competition, especially from Swiss companies, in the biogenerics market.
Teva is actually one of the more advanced companies in biogenerics in terms of research activity, especially after the acquisition of Sicor. Teva has three plants in Mexico, China, and Latvia, which were originally Sicor facilities, that develop, manufacture, and market biosimilar materials. The company already has sales in countries where the regulators are not too scrupulous. In addition, the company sells one drug, a growth hormone, in the US.
Teva strengthened its biotechnology arm when it recently absorbed the Israeli research team of Serono (NYSE: SRA; SWX: SEO), basically the former team of InterPharm Laboratories Ltd. It seems to me that Teva is better organized than most of the companies to enter the opening door, and I really don’t think that this is a cause for concern.
So why is Teva falling? I believe that the fall in Teva is due to a combination of factors operating together. The first is the comparison of values factor. Teva has been valued at a higher premium than its peers, and posting supposedly disappointing results for the first quarter, Teva’s value is now falling in line with those of the other companies.
The second factor is related to Teva’s ethical multiple sclerosis drug, Copaxone, which breaks new sales records every quarter. Many analysts believe that Teva’s ability to increase Copaxone sales has peaked because of the US Food and Drug Administration (FDA) marketing approval, albeit restrictive, for Tysabri, made by Biogen Idec Inc. (BIIB) and Elan Corp. plc (NYSE: ELN), and very aggressive marketing of Serono’s Rebif by Pfizer (NYSE: PFE; LSE: PFZ).
I think that the third factor is related to intensifying competition in the generic drug business, Teva’s bailiwick, especially from Indian companies, and of course from traditional competitors, the most prominent of which is Novartis Pharmaceuticals (NYSE: NVS; LSE: NOV; SWX: NOVZ) subsidiary Sandoz.
The fourth factor pressuring Teva’s share is related to the first, and it is disappointment from Teva’s first quarter results among some analysts. It should be remembered that mergers like the one with Ivax Corp. last year are much tougher than Teva’s previous mergers because of all of the new regulations, and that the cost of the merger should be taken with a grain of salt.
The fifth factor hurting Teva these days is concern of some analysts (the best amongst them) that Teva is not entering the new medical world of biosimilars strongly enough. However, as I explained at the outset, there is no reason to worry on this score.
All these worries are the anxieties of Wall Street and not of Main Street, so I therefore see the drop in Teva’s share as a buy opportunity.
Published by Globes [online], Israel business news - www.globes.co.il - on June 21, 2006
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