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Teva Pharmaceutical Industries (TEVA), the powerful generic giant, has been experiencing trouble with its franchise. Sales are down to $9.8 billion from 10.1 billion in the first six months of 2013. Management has been reshuffled; late last year the CEO was asked to step down and a new man put in charge of generics. Teva's shot at branded pharmaceuticals reached a speed bump in July when a U.S. court invalidated a 2015 patent for big-seller Copaxone, inviting in generics as early as next year. Teva's stock price has not yet recovered. Competitors Mylan, Inc. (MYL) and Momenta Pharmaceuticals (MNTA) are developing similar drugs in a healthcare environment that favors the cheapest compounds that work, causing more pressure.
In the midst of problems, Teva made an unwise decision to relinquish an option to continue with a licensing plan for RX-3117, Rexahn Pharmaceutical's (RNN) unique cancer drug that kills tumor cells. Teva will give back to Rexahn all global rights to make and sell the DNA/RNA inhibitor for treating solid tumors. Teva, however, did fulfill a promise to put RX-3117 under FDA review as a new drug. Rexahn passed the FDA's examination and the drug is on its regulatory path. RX-3117 is a small molecule drug that has shown in studies to enter the bloodstream and cause a therapeutic effect in colon, lung, kidney and pancreas, in addition to overcoming chemotherapy drug resistance.
Teva's public reasoning for ending the work on RX-3117 was stated as a "misalignment" with the company's oncology strategy. Teva wants to focus on hematological cancers like chronic lymphocytic leukemia and non-Hodgkin's lymphoma. If I was a shareholder, I'd be less than happy given Teva's $6.8 billion purchase of Cephalon only two years ago, expressly for the purpose of launching into branded oncology products.
A look at Teva's recent past show fumbling efforts at drugs tried and failed. Last week, the company halted trials of Nuvigil, a me-too treatment for depression and bipolarism, after a Phase III yielded no effects better than placebo. In October 2012, another Phase III was suspended, this time for a generic version of $7 billion blood cancer drug Rituxan, made famous by Roche Holding AG (RHHBY.OB). Another slap in the face for shareholders - developing a biosimilar generic version of Rituxan was the ultimate goal of the joint venture Teva formed with privately-held Lonza four years ago; now competitive positioning will most likely be afforded to generic leader Sandoz.
Teva's bad luck with drug development away from generics came to light in December of last year, when it announced slashing certain oncology and cell therapy programs to the tune of $2 billion. Management themselves admitted acquisitions created a confused pipeline. Studies for lung cancer and a stem cell treatment for peripheral artery disease were cut. Unfortunately, the new focus became, in part, neurology, and we see where that has gotten the company so far. Shareholders are not out of the woods - Teva struck a $376 million deal with Xenon Pharmaceuticals late last year for rights to an ion channel blocker for pain, to bolster its new efforts.
Teva's star as an oncology player has fallen. I believe relinquishing its deal with Rexahn is an example of how it is failing to fill the gap void left by huge generic competition, decreased revenue, no strong branding, and management that looks increasingly incompetent. These problems in a company with a $32 billion market cap should give Teva investors pause and question the logic of terminating a license agreement with Rexahn, especially when it was only in April 2012 that Teva decided to expand its oncology pipeline with a $334 million investment in Mersana Therapeutics. Nine months later, a collaboration with another experimental cancer drug was halted, causing a $109 million write-down. This company appears to be on course to bankrupt its pipeline, lacking the brand differentiation it so desires, and years away from delivering top-line results to replace lost generic revenue.
Big Pharma needs an active pipeline of innovative drugs, not to mention blockbusters, something that has diminished with the mega-mergers of the 1990s. Partnering has long been viewed as key to a successful strategy to stay competitive. History, however, tells a different story filled with pharmaceutical missteps and squandered cash. Just in the last few years, GlaxoSmithKline plc (GSK) mysteriously halted a licensing agreement with Actelion Ltd. (ALIOF.PK) in the midst of Phase III for a new insomnia treatment and was strangely quiet about the reasons. Novartis AG (NVS) wrote off $230 million after shelving plans for what was proclaimed as a major advance in hepatitis C, developed by its then-licensing partner, Human Genome Sciences, after a minor disagreement with the FDA. Most surprising was Sanofi's (SNY) decision to terminate its deal with privately-held Metabolex during Phase II for a diabetes drug expected to be a breakthrough treatment, in spite of favorable data, and without any explanation to shareholders for their action.
With the mistake of returning the RX-3117 license to Rexahn, investors can now add Teva to the list.
I believe that for Rexahn, the return of the license can only be a benefit. Phased trials for RX-3117 will continue with a likely candidate being pancreatic cancer that is hard to treat and attracting the attention of major pharma companies like Merck & Co. (MRK) and Celgene Corp. (CELG). The global pancreatic cancer market is expected to rise to $1.2 billion within two years, and with unsatisfactory treatment options being studied among just a handful of competitors, other, more suitable partners could soon take an active interest in Rexahn and its revolutionary compound.
The foremost risk facing Rexahn is loss of a deep-pocketed partner; however, the company has $15.7 million in cash to bring the company through a number of clinical developments, and a prestigious partner in the University of Maryland for which it is developing RX-21101, a re-engineered form of Taxotere for solid tumors. Other more common risks are enrollment for clinical trials and FDA delays. So far, Rexahn appears to have a favorable, expedited relationship with the FDA as evidenced by its Orphan Drug status for several compound indications,
Rexahn has a platform for over a dozen drugs in targeted tumor therapy, representing billions of potential revenue dollars so that only a small percentage of market share would result in strong licensed sales for the company. Big pharmaceutical firms like Teva are proving that the cancer business is better served by younger, more dynamic companies, and in this light, I believe Rexahn will prevail as a leader in new cancer therapies.
Disclosure: I am long RNN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. (More...)
