Teva Pharmaceutical Industries: A Rebuilding Year
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All sales are in millions of dollars.
In millions of dollars, except EPS
To borrow a sports metaphor, 2013 for Teva might be considered a “rebuilding year.” Last October the company launched a substantial expansion of its ongoing cost reduction initiative – and then, just a few days later, president and CEO Dr. Jeremy Levin stepped down. Then, a few months after new CEO Erez Vigodman took over, Teva announced an organizational restructuring that was implemented in July.
Given all this organizational froth, it is perhaps not surprising that Teva’s top line for 2013 was nearly identical to 2012, dropping a minuscule 0.01 percent to $20.31 billion, with net income down by more than a third to $1.25 billion and earnings falling 76 cents to $1.49. But this financial slowdown may have disguised all sorts of positive developments – continuing growth of the company’s three leading branded products, the acquisition of two promising new developmental migraine compounds, ongoing uncertainty as to the approval pathway for a generic competitor to Copaxone, and some solid late-stage trial results. In the first half of 2014, Teva’s sales edged back upward by 2.2 percent to $10.05 billion, with net income of $1.49 billion, more than the entire previous year.
“We are making significant progress on our top priorities for 2014: solidifying the foundation of Teva, maintaining the Copaxone franchise, driving organic growth, and positioning Teva for long-term value creation,” Mr. Vigodman says. “We [have] continued to accelerate the transformation of our operational network, and have performed a thorough review of our cost reduction program, which yielded additional net savings. We have also acquired Labrys, adding an important asset to our unique patient-centric offering in the pain area. Finally, we are progressing in defining and shaping the future strategic direction of Teva.”
In October 2013, Teva announced steps to accelerate the reduction of costs and to optimize its structure and processes. These steps are part of Teva’s worldwide restructuring program, which was introduced in December 2012 and included actions to divest non-core assets, increase organization effectiveness, improve manufacturing efficiency, and reduce excess capacity.
Teva is reducing its global workforce by about 10 percent (about 5,000 employees), and will complete the majority of the reduction by the end of 2014. Furthermore, the company continues to identify opportunities to optimize value through the selective trimming of assets that no longer fit its core business or are not critical to its future. Teva will scale down oversized parts of the company, while growing its generics business and core R&D programs – including high-value complex generics, expanding its presence in emerging markets and broadening its portfolio, especially in its specialty medicines and OTC businesses.
“Teva is managing its operations to achieve high levels of effectiveness in the short term, while pursuing opportunities for the long term,” Dr. Levin said on the announcement. “The accelerated cost reduction program will strengthen our organization while improving our competitive position in the global marketplace. We understand that this may be a difficult time for our employees and are committed to act with fairness, integrity and respect, and provide support during this time.”
The company expects to realize about $2 billion in annual cost savings by the end of 2017, compared to the previously guided range of $1.5 to $2 billion. About $1 billion of this will be realized by the end of 2014, and 70 percent by the end of 2015. The majority of the savings are expected to come from a reduction in the company’s cost of goods. Teva leaders expect to reinvest part of the initial savings accumulated in 2014 and 2015, in high-potential programs, including the development of the company’s complex generics and specialty pharmaceutical pipeline, which includes more than 30 late-stage programs.
Total pre-tax costs for the corporate restructuring program are estimated at about $1.1 billion, to be incurred as savings are achieved through 2017, about 75 percent in cash and about 25 percent in non-cash accelerated depreciation and impairment of assets.
Shortly after the announcement of Teva’s cost reduction acceleration, Dr. Levin stepped down as the company’s president and CEO, after 17 months on the job. Teva’s board named EyalDesheh, the company’s executive VP and chief financial officer, to fill Dr. Levin’s roles on an interim basis and formed a committee to search for a permanent successor.
“Since I joined Teva, we have made tremendous progress in setting a new course for the company,” Dr. Levin said on the announcement of his leaving. “I wish the company and its people, who I respect greatly, every success. I look forward to pursuing new opportunities where I can continue to apply my experience and contribute to the evolution of the global pharmaceutical industry.”
In January, Teva announced that Mr. Vigodman, formerly president and CEO of MakhteshimAgan Industries (MAI), the world’s leading generic agrochemical company, had been appointed the company’s new president and CEO, effective Feb. 11.
“It is a great honor for me to be named president and CEO of Teva, a pioneer in the healthcare industry,” Mr. Vigodman says. “I am excited to work with the management team and Teva’s employees to build on the great traditions of the company to solidify our global leadership and fully tap the company’s great potential to deliver medicines and solutions to patients all over the world. I understand the challenges facing Teva and I am confident that, together with the management team, we can address these challenges and deliver on our commitment to creating value for our shareholders by expanding Teva’s businesses and delivering long-term growth.”
Before joining Teva, Mr. Vigodman had led MAI since 2010. In that time, he returned MAI to profitability by improving day-to-day operations and investing in areas that would drive organic growth. From 2009 to 2012, MAI saw sales grow by CAGR of 9 percent, operating income by 33 percent, and net income by 55 percent. The improvement trends continued in the first three quarters of 2013.
Mr. Vigodman is credited with transforming the MAI business through a comprehensive strategic plan that included bold moves and outstanding growth in key markets, significant operational efficiencies, improvement to the company’s product portfolio and a major leap in R&D infrastructure. He led the expansion of MAI into emerging markets across Asia and Latin America, and engineered a reverse merger with ChemChina, giving MAI access to the Chinese market and laying the foundation for comprehensive operational platforms in China.
Prior to his time at MAI, Mr. Vigodman served as president and CEO of Strauss Group, a global food and beverages company. In that position, he transformed Strauss into a global player, with an orientation toward the emerging markets and Brazil in particular. At Strauss, he led collaborations with global companies such as Danone and PepsiCo. During his tenure, Strauss more than doubled its sales from NIS 2.9 billion in 2002 to NIS 6.2 billion in 2008.
An Israeli, Mr. Vigodman received his B.A. in accounting and economics from Tel Aviv University in 1987 and is a graduate of the program of Management Development at Harvard Graduate School of Business Administration. He is a member of the Advisory Committee to the Israel National Economic Council, and served on the Advisory Board to the Governor of the Bank of Israel between 2005 and 2009.
In June, Teva announced a new organizational structure and related executive positions, designed to achieve global integration, focus and effectiveness across the company. The changes were targeted to become effective July 1st.
According to company leaders, these changes are another key step in Teva’s strategic direction to create a less complex, integrated company that can address the evolving needs of patients in the global markets in the most efficient, innovative, and differentiated manner possible. All of Teva’s business units will be synchronized and aligned to solidify the company’s foundation, drive organic growth, and accelerate its operational network transformation and integration. This, company leaders say, will strengthen Teva’s global leadership position, while improving profitability and building the infrastructure to support a new future for the company.
“The new organizational structure and leadership team will better position Teva to deliver sustainable growth and create short and long-term value,” Mr. Vigodman says. “We must capitalize first on our existing assets and capabilities, and exploit opportunities and synergies emanating from the full integration of all business activities – most importantly, generic and specialty – while leveraging our global R&D and operations capabilities.”
As of July 1, Teva is now spearheaded by two commercial business units – Global Specialty Medicines (GSM), established in April 2013, and the Global Generic Medicines group (GGM). GGM will have full global responsibility for all existing generic markets. This includes portfolio management and selection, product launch, and commercial execution. This consolidation is expected to take advantage of the economies of scale of Teva’s global generic business to support organic growth, achieve operational and supply chain efficiencies, optimize portfolio selection and development, and develop new products and go-to-market models. This, company leaders say, will be achieved through collaboration and integration with Teva’s Global R&D and Operations groups. GGM will also be responsible for Teva’s growing over-the-counter business, led by the company’s joint venture with Procter and Gamble.
The GSM group is now responsible for Teva’s global specialty medicines business. GSM will continue to drive organic growth and introduce new brands through focused business initiatives. Building on existing expertise and incorporating innovative technology, the group will work to enhance patient experience in the therapeutic areas on which Teva will be focusing.
The newly formed Corporate Development, Strategy and Innovation Group will have a role in positioning Teva for short- and long-term value creation, which will be manifested, executives say, by its contribution to emerging market initiatives. This group will continue to be responsible for strategy and business development initiatives, while looking for innovative business models, partnerships, and technologies that deliver new solutions. It will focus on business innovation and competitive intelligence, using advanced, structured methodologies and processes to uncover emerging scientific and technological trends.
Teva is also creating a new Global Corporate Marketing Excellence and Communications Group, which will be responsible for corporate marketing excellence, brand management, corporate communications, and corporate social responsibility. This group is assigned with building a coherent narrative for the company and enhancing Teva’s corporate brand story, achieving global impact with one voice and one identity. The marketing excellence arm of this group will drive a shift toward a market-oriented approach throughout the company, centered on patients, customers, and payers, while integrating the brand into the business.
Acquisitions And Partnerships
In September 2013, Teva and Cancer Research Technology Ltd., Cancer Research UK’s technology development arm, signed a multi-project alliance agreement to research and develop first-in-class cancer drugs that modulate DNA damage and repair response processes in cancer cells. DDR plays a key role in protecting cancer cells from the damaging effect of chemotherapy – creating an in-built antidote to the toxic effects of the anti-tumor drug. As the cancer cells that are best able to repair the DNA damage caused by the cancer treatments survive, they replicate, naturally selecting for the mutation with the enhanced repair capability – leading to recurrence and resistance to treatment.
Cancer Research UK has an extensive network of leading UK universities along with five cancer research institutes (Gray Institute, Oxford; Cancer Research UK Cambridge Institute; London Research Institute; Paterson Institute, Manchester; and the Beatson Institute, Glasgow). These will provide the foundations for CRT’s and Teva’s work towards developing novel therapies based on DDR-related targets for the treatment of cancer.
“For cancer patients, it is important that we maintain the momentum of progress that has been made in oncology in recent years,” says Dr. Michael Hayden, president, Teva Global R&D and chief scientific officer. “Cancer Research UK, CRT, and their outstanding academic partners, are a driving force in the improved understanding of cancer and its treatment. This research collaboration will build on our understanding of how cells repair DNA damage, help us identify possible points of therapeutic intervention, and lead us onto a pathway toward improve clinical outcomes for cancer patients.”
The alliance, company leaders say, will provide Teva with the opportunity to research and develop selected and differentiated novel treatments targeting DDR processes. With a focus on mechanisms and molecular targets related to the emergence of therapeutic resistance in cancer cells, the partnership also opens up the potential to expand the clinical utility and therapeutic effectiveness of Teva’s current portfolio of oncology chemotherapeutic agents. This approach builds on Teva’s growing focus on personalized medicine throughout its R&D pipeline, and specifically within its oncology portfolio.
Building on a prior well-established working relationship, the multi-year agreement sets out the provision of new molecular targets, selected by CRT from Cancer Research UK’s portfolio of biological research in DDR. These targets will be validated to prove their therapeutic importance before progressing to the early stages of drug discovery in CRT’s Discovery Laboratories. CRT and Teva will then jointly undertake chemical lead generation activities. Under the terms of the agreement, CRT will receive research funding and be eligible to receive milestone payments, and royalties on projects advancing through Teva’s drug pipeline.
In January, Teva entered into a definitive agreement to acquire NuPathe Inc. for $3.65 per share in cash, or about $144 million. In addition to the upfront cash payment, NuPathe shareholders will receive rights to receive additional cash payments of up to $3.15 per share if specified net sales of NuPathe’s migraine treatment Zecuity are achieved over time. The transaction was completed in February.
Zecuity is the first and only prescription migraine patch approved by FDA for the acute treatment of migraine with or without aura in adults. The product is a disposable, single-use, iontophoretic transdermal patch that actively delivers sumatriptan, the most widely prescribed migraine medication, through the skin. Zecuity was approved based on an extensive development program with Phase III trials that included 793 patients using nearly 10,000 patches. In these trials, Zecuity demonstrated a favorable safety profile and was effective at relieving migraine headache pain and migraine-related nausea two hours after patch activation.
“We believe that Zecuity is a great fit within our existing U.S. CNS Business Unit, with near-term sales and significant commercial potential,” says Mike Derkacz, VP and General Manager, Teva CNS. “Zecuity enables rapid transdermal delivery of sumatriptan and bypasses the GI tract to avoid issues with oral intake, addressing an important, unmet patient need, especially for those with migraine-related nausea. At Teva, we will leverage our unique Shared Solutions infrastructure to support patient utilization of this important new medicine for migraine sufferers.”
In June, Teva entered into a definitive deal to acquire Labrys Biologics Inc., a privately held development-stage biotechnology company focused on treatments for chronic migraine and episodic migraine. As per the agreement, Teva was to acquire Labrys for $200 million in upfront payment in cash at closing as well as up to $625 million in contingent payments upon achievement of certain pre-launch milestones. The deal duly closed the following month.
Labrys is developing LBR-101, a fully humanized monoclonal antibody that binds to calcitonin gene-related peptide (CGRP), in Phase IIb clinical trials for the prevention of chronic and episodic migraine. According to company executives, Teva’s acquisition of the LBR-101 program targeting high frequency episodic and chronic migraine clearly complements the recent addition of Zecuity, an innovative therapy for the acute treatment of migraine, obtained through the acquisition of NuPathe. This ability to treat both acute and chronic migraine builds on Teva’s broader pain portfolio, which was recently further strengthened by positive pivotal Phase III results achieved by Teva’s potential abuse-deterrent extended release hydrocodone. Potential peak sales for LBR-101are projected to reach $2 to $3 billion.
“More than 8.5 million people in the United States, EU, and Japan suffer from episodic or chronic migraine requiring preventative treatment, a condition that can destroy their quality of life,” Dr. Hayden says. “CGRP is a well-validated target in migraine, and Labrys has progressed the development of LBR-101 with scientific rigor and excellence. With its long half-life, target specificity and favorable pharmacokinetic profile allowing for infrequent, and convenient, subcutaneous administration, LBR-101 represents a very exciting biologic product candidate, and much needed option, for the management of this truly debilitating condition.”
Teva remained the No. 1 generics company in the United States, Europe, and the entire world in 2013, but sales of the company’s generics portfolio actually dropped by 4.6 percent to $9.91 billion for the year. According to company leaders, the decrease resulted mainly from a decline in U.S. sales of the generic version of Lexapro, for which Teva had exclusive rights in the first half of 2012; the lack of royalties related to the U.S. sales of the generic equivalent of Lipitor under the company’s agreement with Ranbaxy, which Teva received in the first half of 2012; and a decline in U.S. sales of the generic versions of Actos and Actoplus met, which were launched in the third quarter of 2012. During the course of the year, Teva launched generic versions of 21 branded products in the United States, the company’s largest generic market, including generic versions of NiaspanER (launched in September), Aciphex (November), and Cymbalta (December).
In the first half of 2014, Teva’s generics revenue rose 3.8 percent to $4.91 billion. This improvement was helped along by the U.S. launches of generic Detrol in January, Xeloda in March, and Lovaza and Evista in April.
The multiple sclerosis drug Copaxone, Teva’s leading branded product, enjoyed another solid year of growth in 2013, with sales up 8.3 percent to $4.33 billion. In January 2014, FDA approved Teva’ssNDA for three-times-a-week Copaxone 40mg/mL, a new dose of the drug. This new formulation will allow for a less frequent dosing regimen administered subcutaneously for patients with relapsing forms of multiple sclerosis. As of the end of the second quarter of 2014, 51 percent of U.S. prescriptions for Copaxone had been converted to the new dosage. In the first half of 2014, Copaxone sales were down 5.9 percent to $2.01 billion. While the U.S. patents for Copaxone expired in May 2014, and a generic version developed by Synthon performed similarly to the branded drug in a recent head-to-head clinical trial, it is unclear as of yet whether FDA will treat the product as a traditional generic or a biosimilar, making the timing of generic competition uncertain.
Treanda, Teva’s leading oncology product, improved its sales by 16.6 percent in 2013 to $709 million. In September 2013, FDA approved Treanda Injection, a new formulation of the previously approved Treanda for Injection. This new liquid formulation removes the step of reconstituting lyophilized powder with sterile water prior to adding the medicine to the dilutent and administering to a patient. Treanda is indicated for use in patients with indolent B-cell non-Hodgkin lymphoma that has progressed during or within six months of treatment with rituximab or a rituximab-containing regimen, and in patients with chronic lymphocytic leukemia. Two months later, FDA granted orphan drug exclusivity for Treanda through October 2015 for indolent B-cell non-Hodgkin lymphoma that has progressed during or within six months of treatment with rituximab or a rituximab-containing regimen. In the first half of 2014, Treanda sales were up another 6.3 percent to $370 million.
The Parkinson’s disease drug Azilect enjoyed 12.4 percent sales growth in 2013, with sales up to $371 million. In June, FDA expanded the indication for Azilect from monotherapy and adjunct to levodopa to now include adjunct to dopamine agonists. The new indication reflects that Azilect can be used alone or in combination with other Parkinson’s disease medications. The FDA approval of the expanded label was supported by data from the ANDANTE study (Add oN to Dopamine AgoNists in the TrEatment of Parkinson’s disease).The study demonstrated that Azilect provides a clinical benefit by significantly improving total Unified Parkinson’s Disease Rating Scale (UPDRS) scores compared to placebo in patients on DA monotherapy, while demonstrating tolerability.
In the first half of 2014, Azilect sales were up by 20.6 percent to $216 million.
In The Pipeline
2014 brought bad news for Teva’s leading pipeline compound, the multiple sclerosis drug laquinimod. In January, the Committee for Medicinal Products for Human Use of the European Medicines Agency concluded that the risk-benefit profile of laquinimod is not favorable. Three months later, the committee confirmed its earlier opinion to recommend against approval for the treatment of relapsing-remitting multiple sclerosis. Teva and partner developer ActiveBiotech remain committed to the laquinimod clinical-development program for multiple sclerosis and are focused on evaluating the CHMP feedback to determine potential next steps.
“We are disappointed with the outcome of the re-examination and will be working with the EMA to make [laquinimod] available to multiple sclerosis patients in the EU,” Dr. Hayden says. “We believe [laquinimod] has a favorable risk-benefit profile and the potential to fulfill an unmet need for a treatment that decreases disability progression, and protects against brain volume loss, two important goals in the management of MS.”
To further confirm the benefits of laquinimod on disability progression, Teva is conducting the CONCERTO trial, the largest multiple sclerosis trial with disability progression as the primary endpoint. The ongoing CONCERTO trial is the third Phase III study in RRMS and explores daily doses of laquinimod 0.6 milligrams and 1.2 milligrams. In addition, Teva is investigating the potential of laquinimod in progressive forms of multiple sclerosis. The first trial for this indication was planned to be initiated soon.
In April, Teva and partner developer OncoGenex Pharmaceuticals Inc. announced results from the Phase III SYNERGY trial, a randomized, open-label, two-arm study comparing the combination of custirsen and standard first-line docetaxel/prednisone therapy to docetaxel/prednisone alone in men with metastatic castrate-resistant prostate cancer. Top-line survival results indicate the addition of custirsen to standard first-line docetaxel/prednisone therapy did not meet the primary endpoint of a statistically significant improvement in overall survival in men with metastatic CRPC, compared to docetaxel/prednisone alone.
“We are disappointed with these results,” Dr. Hayden says. “Addressing treatment resistance is critical in the fight against cancer. We are working with OncoGenex to more fully understand these data.”
Later that month, Teva announced positive results from a pivotal Phase III study of hydrocodone bitartrate extended-release tablets designed with Teva’s proprietary technology providing potential abuse-deterrent properties (CEP-33237).
The results showed significant improvement in the treatment of patients’ chronic low back pain as measured by both weekly average Worst Pain Intensity (WPI) and weekly Average Pain Intensity (API) scores. CEP-33237 is an investigational twice-daily, acetaminophen-free hydrocodone formulation in development for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. Teva expects to submit an NDA for CEP-33237 to FDA by the end of 2014.
Also in April, Teva enrolled the first patient in The Pride-HD study, a Phase II, randomized, double-blind, placebo-controlled global study designed to evaluate the impact of pridopidine, an investigational medication, on motor impairment in patients with Huntington’s disease. The primary objective will be to assess the efficacy of pridopidine on motor impairment after 26 weeks of treatment using the Unified Huntington’s Disease Rating Scale (UHDRS) Total Motor Score (TMS). The study will also examine the effect of treatment with pridopidine on the Physical Performance Test (PPT), as well as the safety and tolerability across the range of pridopidine doses in patients with HD during the 26 weeks of treatment.
“People with HD are in urgent need of new treatments and we are committed to investigating the potential benefit of pridopidine as quickly as possible,” Dr. Hayden says.
In September, Teva announced that reslizumab, an investigational anti-IL-5 monoclonal antibody, demonstrated clear levels of efficacy in achieving the primary endpoint of reduction in the frequency of clinical asthma exacerbations compared to placebo in two pivotal Phase III studies in patients with inadequately controlled moderate-to-severe asthma with elevated levels of blood eosinophils. In both trials, reslizumab treatment showed clinically relevant and statistically significant reductions in the frequency of CAE compared to placebo. Reslizumab has also demonstrated a positive effect on lung function and asthma control in the Phase III program.
“Asthma that is inadequately controlled by current standard of care therapy continues to present a serious problem for patients, physicians, and healthcare systems,” Dr. Hayden says. “The success of these studies gives us confidence that we may have a valuable potential new treatment option for asthma patients, with elevated levels of blood eosinophils, who are at risk of exacerbation. We plan to submit applications for approval in the United States, Europe, and other regions as soon as possible.”