Teva Pharmaceutical Industries Ltd's (Nasdaq: TEVA; TASE: TEVA) acquisition of Cephalon Inc. (Nasdaq: CEPH) is causing far-reaching changes in Teva's brand drug operations. Sources inform ''Globes'' that Teva plans to set up a venture capital fund to invest in Israeli drug development companies.
Teva Innovative Ventures head Dr. Aharon Schwartz will be responsible for investing in start-ups and reaching licensing agreements with universities as part of the company's effort to expand its pipeline of innovative drugs.
Teva has already invested in several Israeli drug development start-ups. Investing through a corporate venture capital fund, rather than directly, has significant implications. A venture capital fund will be a legal and corporate entity separate from Teva. This should ease fears of potential target companies that accepting money from Teva might deter other potential investors.
On the other hand, moving the investment operations away from Teva's core business is liable to lower its importance for the company. A venture capital fund has a fixed budget, and its performance reviews are partly based on profits, whereas the activities of current special ventures are run as part of Teva's budget, and are therefore freer to be evaluated on the basis of their strategic contribution.
Teva has chalked up strategic successes in its innovative ventures program, including early-stage investments in chronic wounds treatment developer Polyheal Ltd., burn wounds treatments developer Mediwound Ltd., and cancer treatment developer CureTech Ltd. Teva has made substantial follow-on investments all these companies.
Consolidating innovative drugs R&D
In addition to being the world's largest generic pharmaceutical company, Teva has extensive brand drug operations, which account for 30% of its revenue. Most of this revenue currently comes from its intravenous multiple sclerosis drug, Copaxone. Teva has been expanding its pipeline of innovative drugs, and this strategy includes the acquisition of Cephalon for $6.8 billion earlier this year. Cephalon CEO Kevin Buchi will replace Dr. Yitzhak Peterburg as Teva VP global branded products.
Sources inform ''Globes'' that other executives at Teva's strategic R&D division have left the company or are seeking other jobs. If they are not replaced, Teva's brand drug operations will be become fully subordinate to Buchi and his team.
Teva continues to deny that it will lay off employees at its innovative drugs R&D division in Israel following the acquisition of Cephalon. Asked at the press conference following the release of Teva's second quarter financials whether the acquisition would result in the transfer of Teva's innovative drugs R&D operations to the US, president and CEO Shlomo Yanai said, "Absolutely not. Teva's R&D activity in Israel will continue its operations and it will be expanded."
Teva employs 800 R&D staff in Israel, including 350 employees who work on innovative drugs.
Consolidating biosimilars
That said, as the closing of the Cephalon acquisition draws closer, Teva is apparently considering other changes in its innovative drugs business. For example, it is considering consolidating its biosimilar (generic versions of biological drugs) with Cephalon. In 2008, Teva acquired US biosimilars company CoGenesys Inc. for $400 million, and in 2009, it set up a joint venture with Swiss biosimilars company Lonza AG (SWX: LONN). Teva is apparently considering basing its biosimilars operations in Europe.
Teva's five-year strategic plan calls for $830 million in biosimilar sales by 2015, up from a few tens of millions of dollars today.
Teva said in response, "Teva is not firing any of its Israeli R&D staff. The company employs more than 800 people in R&D, and it has expanded its Israeli workforce from 4,000 to 7,000 over the past few years. Teva just recently inaugurated its new R&D center, which will meet Teva's R&D needs in Israel for years to come.
"The Cephalon deal is due to be closed in October. The company is examining various alternatives regarding this merger, and it is premature to comment on questions about the nature of the merger. Therefore, anything said about this merger is based on incorrect and misleading rumors and speculation."
Teva's share price rose 0.8% in early trading on Nasdaq to $38.62, giving a market cap of $36.4 billion, after falling 1.1% on the TASE to NIS 141.50.
Published by Globes [online], Israel business news - www.globes-online.com - on September 15, 2011
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