Teva is back at center stage again. With the dot.com craze behind us, investors are beginning to long for companies such as Teva, whose shares have surged 70% since the beginning of the year, going against the Wall Street flow and bringing the company's value to about $8 billion.
The share rose on a series of business events, notably an incessant flow of generic licenses. Since the beginning of the year, Teva, considered the world leader in generic drugs, has announced 14 such FDA licenses for manufacturing and marketing generic drugs. That's not bad, but the company's exploits didn't end here. Teva's ethical drug operations also picked up considerable momentum. Two months ago, the British health authorities recommended that Copaxone be approved for marketing in Britain.
Teva published its Q2 financial results, and they definitely met analysts' expectations. The company, which consolidated its reports with those of Canadian company Novopharm for the first time in Q2, posted a $44.7 million ($0.33 per share) profit on revenues of $444 million. The profit helped Teva meet a one-time $35.7 million charge, due chiefly to the acquisition of Novopharm.
A comparison with the corresponding quarter in 1999 is no longer relevant, in view of the merger with Novopharm. However, Teva CFO Dan Suesskind today stressed that, even when Novopharm and Copley (merged into Teva at the end of 1999) are taken out of the equation, Teva grew 10% over the corresponding quarter in 1999.
Suesskind added that Teva's profit margins narrowed in Q2, because Novopharm's gross profitability is lower than Teva's. Teva officials hope that Novopharm's reorganization will improve its gross profitability. Suesskind pointed out, however, that Novopharm's distribution operations, notably in Europe, have always been low-profit, and their profitability is not expected to improve.
The acquisition of Novopharm has strengthened Teva's status in the North American generic market, which accounts for 60% of its Q2 sales - up from 46% in the corresponding period last year. At the same time, the proportion of sales in Europe and Israel fell to 23.8% and 13.6% respectively.
Needless to say, Copaxone holds pride of place in Teva's financial results. Q2 sales of Copaxone, a drug used for treating multiple sclerosis patients, amounted to $59.4 million - 56% higher than the corresponding quarter last year, and 20% higher than Q1 2000 ($49.2 million). Unlike its competitors, Teva is constantly expanding its market. Suesskind contends that the company is not adversely affected by the competition, and estimates that Copaxone sales will reach $250 million this year.
Hurwitz today reiterated that Teva's objective is "to double our sales every four years. When we said this two years ago, people raised their eyebrows, but today they already realize that we're indeed heading in this direction. I think we've succeeded in meeting the challenge we set for ourselves in 1999. Our performance improved greatly thanks to successful mergers and new products, some of which have already been launched and the others will hit the market in the second half of 2000, perhaps as soon as Q3, but no later than Q4."
As for the cherry on the Teva cake, Copaxone, Hurvitz positively takes flight as he describes progress in sales of the drug. "Copaxone has grown at an impressive rate and to my mind is acquiring market leader status. Sales in the second quarter of the year, in terms of market selling price, amounted to almost $60 million, 56% more than in the corresponding quarter last year. Some 85% of these sales were in the US, where Copaxone continues to strengthen its standing in second place in the multiple sclerosis drug market. Copaxone is in fact the only drug in this market whose market share is increasing."
Although Teva focuses on generic medicine, it also develops ethical drugs. Teva has signed a cooperation agreement with Danish company Lundbeck for developing ethical drug Rasagiline, for the treatment of Parkinson's disease. Two months ago, the company announced the successful completion of the third stage of clinical trials. Suesskind estimates that if all goes well, marketing will start in 2003.
Still, generic drugs are Teva's core activity, with ramified R&D operations. "Teva is currently carrying out six clinical trials involving 3,700 patients in 20 countries," Hurwitz says. "Teva possibly has the most diverse R&D operations in the industry, but we also plan to continue expanding our ethical drugs activity. In any case, I believe Teva has the most varied product range in the industry. Products awaiting FDA approval also ensure a handsome sales potential."
Ethical drugs are something of a post-dated check, but generic drugs are Teva's bread and butter. In the first half of 2000, the company received 14 licenses for marketing generic drugs, of which five are tentative. As of the end of Q2, Teva had 37 products (including products by its partner, Biovail) awaiting FDA approval. 13 products have already received tentative approval, pending expiration of their patent. Teva has applied for exclusive six-month marketing licenses for six of these products. The annual sales of all products covered by the applications, in terms of the original product price, amounts to $14 billion.
Hurwitz today said that Teva's objective of doubling its sales every four years may be realized by the continued development of generic drugs parallel to the development of unique products and the pursuit of mergers and acquisitions in North America and Europe. For this purpose, the company is constantly looking into strategic acquisitions in both Europe and the US. Hurwitz pointed out that Teva is seeking to acquire small and medium-size companies in Europe and large companies in the US. "In the US, we're considering far bigger acquisitions than in the past, because we've moved into a higher league. This time around, we may buy a really big company, even bigger than Novopharm, which we bought for $400 million in a share swap," Hurwitz said. According to Suesskind, Teva is seeing to it that, at any given moment, it has $200-250 million in credit and cash, although deals may also be carried out through a share swap.
And what about a Wall Street issue? we asked. Suesskind replied that no issue is in the pipeline at the moment, "but everything could change in the future."
Published by Israel's Business Arena on 31 July, 2000