Teva Pharmaceutical Industries' new chief executive is set to shift the company's focus to branded drugs from generics as he imports a successful strategy of making mid-sized deals from Bristol-Myers Squibb.
The transformation -- which hinges on Jeremy Levin picking a handful of winning new products to boost Teva's branded portfolio -- is unlikely to happen overnight.
In hunting for potentially lucrative experimental medicines, Levin will be competing with a wide field of rivals, including the world's biggest pharmaceutical manufacturers, most of whom are hungry for new drugs to refill pipelines depleted by patent expirations.
Levin, senior vice president for strategy, alliances and transactions at Bristol-Myers since 2007, will take the reins at Teva in May in the wake of Shlomo Yanai's surprising resignation after five years at the helm.
Teva's shares jumped 3.3 percent on the news on Monday in Tel Aviv, an indication that investors were unhappy with Yanai -- who engineered a number of large acquisitions -- and sought a change in direction that included a strategy to replace its top-selling multiple sclerosis drug Copaxone.
Analysts believe the move to change CEOs had been in the works for months since Teva's share performance has been poor and Teva Chairman Phillip Frost said the process to find a successor to Yanai took almost all of last year and that the transition process should be orderly.
The South African-born, Cambridge-educated Levin, global head of business development and strategic alliances at Novartis from 2003 to 2007, has so far declined to give any specifics on his strategy for Israel-based Teva, citing the need to complete a deep dive in the next few months.
But he told analysts on a conference call on Tuesday that there was no difference between generic and proprietary drugs.
I have a deep philosophy in that medicines are medicines. It does not matter whether they are branded or generic, Levin said. The key question is can you make the affordable and can you provide them to patients.
Teva's Nasdaq shares were up 6.5 percent at $42.97 on Tuesday, still nearly 40 percent below a year's high of $57.08 on January 26, 2011.
Teva's sliding price/earnings ratio: http://link.reuters.com/tyb85s
STRING OF PEARLS
Many analysts believe Teva's shares could be poised for a rebound after its Nasdaq shares fell 21 percent in 2011 to underperform the drugs sector.
Levin comes from a Bristol-Myers management team that has substantially turned around the company, has been very shareholder friendly and is very well regarded by (Wall) Street, JPMorgan analyst Chris Schott wrote in a client note.
Clearly, we will have to watch for any further changes in Teva's strategy as Levin moves into his new role but after a difficult year for Teva shares, we believe the transition will be well received, added Schott, who rates Teva as overweight with a $55 price target.
At Bristol-Myers, Levin implemented a string of pearls strategy of alliances, partnerships and acquisitions with small and large companies -- a policy he is expected to continue at Teva as it looks for a way that its branded business can grow.
Levin's appointment clearly signals that Teva will remain acquisitive in building its brand business but at an appropriate scale since Levin will likely attempt to recreate his 'string-of-pearls' success, said Barclays Capital's Douglas Tsao.
As a result, additional large acquisitions that propelled Teva to the world's largest maker of copycat medicines are unlikely, and could prompt the company to back off its ambitious target of $31 billion in sales by 2015.
Teva, which has a market value of $36 billion, is forecast to post sales of $22 billion in 2012, $12 billion coming from generic drugs. Nearly $4 billion is projected from Copaxone, whose sales are forecast to peak this year.
Copaxone, an injected drug, now accounts for 23.5 percent of total sales, compared with 19 percent a year ago and faces competition from a variety of oral MS treatments that are available or are expected to hit the market in the coming years.
Novartis' recently launched drug Gilenya is the first oral MS drug to reach the market while Biogen Idec's experimental drug BG-12, if approved, promises to become a leading treatment for MS. Teva's own experimental MS pill laquinimod missed its main goal in a late-stage trial in what was seen as a major setback.
Analysts also expect fewer generic blockbuster drugs to hit the market starting on 2013 in another hit to Teva.
EMERGING MARKETS FOCUS
Through Cephalon, Teva has about 30 branded drugs in various stages of development and clinical trial and analysts expect Levin to ultimately decide which of them to push more aggressively.
Teva's success in the branded business remains an open question in the coming years, Jonathan Kreizman, an analyst at the Clal Finance brokerage said, citing the failure of Parkinson's disease drug Azilect. The generics and branded businesses are very different and Teva will have to prove itself like it did in generics.
Developing drugs is more risky and different than imitating drugs, he said.
Another focus for Teva will be to continue expanding in emerging markets.
These are markets that are becoming increasingly sophisticated ... and it is very important for every company in the industry to understand how they will penetrate these markets, Levin said. I do not think that this is something that should wait for the long term.
I am very very interested and regard this as an important contributory leg to building a global company ... It is something I will be looking very carefully at.
(Reporting by Steven Scheer; Additional reporting by Lewis Krauskopf; Editing by Maureen Bavdek)