Israel's Pharma-Patent Killer

Teva, the world's largest maker of chemical generic drugs, is moving in on biogenerics

by Shailaja Neelakantan

In 1984 Orrin Hatch and Henry Waxman unknowingly created a giant killer when they pushed through an amendment to the U.S. Federal Food, Drug and Cosmetics Act, which allowed drug manufacturers to challenge the validity of patents. Israel's Teva was already making many patented drugs for local use through licensing agreements, so all the company needed to reap the benefits of the new legislation was to put in place a crack legal team to bust existing patents. "The core of Teva's business model is challenging existing patents of innovative drugs," says Yoav Burgan, an analyst at Leader Capital Markets in Tel Aviv, Israel. "It has been very successful at this." That skill, as well as a knack for acquiring competitors—including Sicor, Ivax and Barr Pharmaceuticals—has made Teva the world's biggest generic-drug company.

Starting in January 2008, however, Teva's acquisitions signaled a move into biotechnology. For example, Teva bought CoGenesys for $400 million. CoGenesys is developing improved, long-acting biopharmaceuticals for therapeutic uses, including preventing infections in cancer patients undergoing chemotherapy. Then in January 2009 Teva signed a joint venture agreement with Swiss biologic contract manufacturer Lonza Group to develop biogenerics.

A spokesperson from Teva would only say, "Teva and Lonza will cooperate to develop, manufacture and market a number of affordable, efficacious and safe generic equivalents of a selected portfolio."

“ Starting in January 2008... Teva's acquisitions signaled a move into biotechnology ”

While most analysts are bullish about Teva's biotech buys, some doubt it will turn them into earners as quickly as did its chemical-drug acquisitions. "CoGenesys was a waste of money," says Ori Hershkovits of Tel Aviv's Sphera Fund, because there is no way of competing with proprietary companies in biotech. The products aren't substitutable, which means the generic versions are never an exact match and require expensive clinical trials. Moreover, they aren't AB-rated, so they must be marketed directly to doctors, which Hershkovits says would require Teva to develop a more extensive sales network.

In addition Hershkovits dislikes the joint venture with Lonza, since its monoclonal antibody is less efficient than the antibodies of other companies. "Lonza manufactures a monoclonal antibody that is 1.5 grams per liter, and there are companies out there that are manufacturing such antibodies at 20 grams per liter," he says, explaining that the higher the number of grams per liter, the lower the manufacturing costs.

Others, including Ronny Gal an analyst at New York-based Bernstein Research, are more optimistic. As Gal points out, the sales force already in place for Teva's proprietary multiple-sclerosis drug Copaxone will be useful when its biogenerics come to market. Moreover, Teva spent about $150 million on scientific research and development in 2007, so its biotech acquisitions could work.

Nonetheless making biotech drugs is very difficult, and Teva still spends less than half the amount that typical proprietary-drug companies invest in research and development. It's probably time for Teva to complement its crack legal-research team with a stellar group of scientists in drug discovery and development.