The management of Israeli generic drug giant Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) has been making strenuous efforts lately to tell the public and investors that the day is still far off before there will be any generic competition to its multiple sclerosis treatment, Copaxone. Copaxone is the first innovative drug developed by an Israeli company that has obtained US Food and Drug Administration (FDA) marketing approval.
Copaxone accounts for one-fifth of Teva's revenue, so it is unsurprising that when other generic drug companies want to challenge Teva's patents on the drug, Teva's management goes into defense mode in response.
"Copaxone is a very hard drug to replicate," Teva CFO Eyal Desheh said recently. "There's not a great chance that a generic version will be launched before 2014, when the drug's patent expires."
Teva president and CEO Shlomo Yanai is even more unequivocal. "It's impossible to copy Copaxone," he said.
For now, investors aren’t buying Teva management's optimism, as seen in the plunge in its share price on Nasdaq a week and a half ago, and subsequently on the TASE.
Generic pharmaceuticals firm Sandoz head Jeff George stands with the skeptics. Sandoz is the world's second largest generic drug company, after Teva. It is one of the two companies currently developing a generic version of Copaxone, in hope of challenging Teva's patents much before they expire in 2014.
George has grounds for his optimism. The FDA recently granted approval of a generic version of deep vein thrombosis treatment Lovenox (made by Sanofi Aventis SA (NYSE; Euronext: SNY)) to Momenta Pharmaceuticals Inc. (Nasdaq: MNTA) and Sandoz. Their joint generic Lovenox is called Enoxaparin. Lovenox, like Copaxone, is considered a very complex drug that is hard to replicate. Investors are worried that the moment is approaching when someone will crack Copaxone's complexity.
When the FDA gives the green light, generic versions of Copaxone will hit the US market, and Teva will have to see how its competitors eat away at the market share of its biggest cash cow. Sandoz, a generics affiliate of Novartis AG (NYSE: NVS), and Momenta first filed two years ago for an abbreviated procedure for an at risk launch of generic Copaxone, before its patents expire. Mylan Inc. (NYSE: MYL) followed suit a year ago. Teva did not ignore the challenges and sued Sandoz.
Teva's deeds and its management's words did not deter George from giving an exclusive interview to "Globes", in response to the latest developments.
Teva CFO Eyal Desheh recently said that it's very hard to replicate Copaxone. Do you agree?
George: "I'll put it this way. Sanofi Aventis said the same thing in the past about Lovenox, but the FDA's actions last Friday proved otherwise. This is a good sign that, in future, more and more marketing approvals will be granted for generic versions of drugs that are considered hard to replicate.
"There's no doubt that Teva's Copaxone is a complex drug that is not easy to replicate. We know this, but the FDA has shown that it can approve for marketing generic versions of drugs that are considered complex."
So Desheh is too optimistic.
"I wouldn’t care to respond specifically to the comments of Desheh and/or to determine if he is too optimistic or too pessimistic. I can say that the claims made in the past by Sanofi Aventis, and which are now being made by Teva, were shown last Friday to be incorrect."
Desheh also said that it's impossible to obtain a permit for generic Copaxone without human clinical trials.
"That's probably Teva's assessment, as it was Sanofi Aventis', but as we saw last Friday, the FDA thinks otherwise."
Desheh also claims that the chances that the FDA will approve generic Copaxone for marketing before 2014 are very low.
"I can't comment publicly about Sandoz's strategy for challenging patents, but I can say that to claim that there won't be a generic version of Copaxone before 2014 is too optimistic."
Teva is suing Sandoz over its plans to market generic Copaxone. George says that the trial is due to start in the third quarter of the year.
In your opinion, there's no doubt that there will be a generic version of Copaxone the moment its patents expire in four years.
(Laughing)"You're putting words into my mouth. I don’t want to state when a generic version of the drug will reach market. I prefer to wait and see how things develop."
George has been head of Sandoz for two years. He was previously head of Asia, Middle East, Africa and CIS for Novartis. He learned about the Israeli market in that post, and says that Tel Aviv is a wonderful town.
George was born in Minnesota in the US, was raised in Belgium, and has resided in several countries, including China and South Africa. He now lives with his family in Germany, Sandoz's headquarters.
Like Teva, Sandoz has been making acquisitions in recent years, albeit not at Teva's pace. Sandoz has made two acquisitions in the past two years, and 12 since 2000, but much smaller companies than those bought by Teva.
Teva has become an aggressive buyer, and its mergers and acquisitions as well as those of its rivals are liable to reduce the future consolidation potential in the sector.
"It's true that the number of players in the market has been declining over the years, but I believe that there's room for more consolidation in the industry."
Teva's most recent acquisition was Germany's Ratiopharm KmbH for $5 billion. The deal greatly strengthened Teva's foothold in the European generic market, especially Germany, where the leading player is Sandoz subsidiary Hexal. George says that he senses no threat.
"I have great respect for Teva as a competitor. Its track record in recent years, especially under the baton of Shlomo Yanai, is very impressive. There's no doubt that the acquisition of Ratiopharm gives Teva a strong presence in Central Europe, but competition isn't necessarily a bad thing.
"Competition pushes us to be more creative and improve the quality of services and products we give the end consumer. Teva and Sandoz have the same objective, which is to expand the end-user's access to cheaper drugs.
"Sandoz is still the number one generic player in the German market. Teva, through Ratiopharm, is number two. Sandoz has a 27% market share, and Teva has 18%. And while Teva's entry will increase competition between us, I welcome Teva's entry into the German market."
Nonetheless, five years ago, the gap between Teva and Sandoz, two of the world's largest generic companies, was very narrow, and Teva has widened it. Can Sandoz narrow the gap, even by a little?
"Teva has been a much more aggressive buyer over the years, and most of its growth has come from its huge acquisitions, such as Ivax, Barr, and Ratiopharm. However, it is no longer a pure generics company, since Copaxone is responsible for a substantial part of its revenue. Therefore, a comparison between it and Sandoz is like comparing apples with oranges.
"Just as we don’t include income from innovative drugs made by Novartis in our results, a comparison between Teva and Sandoz should exclude the contribution of Copaxone to Teva's revenue."
Novartis and Sandoz are an example of a successful collaboration between an innovative drug company and a generics company, but most people believe that generic companies cannot live in peace with the innovative companies. What's your opinion?
"Sandoz and Novartis believe that there's synergy between the two sectors. The savings created by the use of cheaper drugs can be reinvested by governments or companies in development of more innovative drugs. Therefore the relationship between the sides is very symbiotic.
"True, many people think that the fact that Sandoz is a part of Novartis is a disadvantage, but I believe that it's an advantage."
George concluded the interview by saying a few words about Teva. "We have a lot of respect and esteem for Teva. It's a wonderful company that has done amazing things, and I'm very happy that we have a strong competitor like it."
Published by Globes [online], Israel business news - www.globes-online.com - on August 2, 2010
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