If you can't beat 'em, join 'em, goes the old saw. Or in Teva Pharmaceuticals' (Nasdaq: TEVA) case, if you can beat 'em, join 'em. The generic-drug maker that's been a thorn in pharma's side is moving further into branded drugs itself.
Today Teva licensed a preclinical cancer drug candidate, XMT-1107, from privately held Mersana Therapeutics. Teva is on the hook for $334 million in development, regulatory, and commercial milestones if the drug is a success. Mersana is also due undisclosed royalties on sales of the drug. Assuming the royalties aren't outrageous, the milestones are relatively cheap for a potential blockbuster. Of course Teva is taking on all the risk as it's responsible for paying for the clinical trials.
Development of branded drugs isn't completely new to Teva. The drugmaker has branded drugs in the respiratory and women's health spaces, and its multiple sclerosis treatment, Copaxone, has become a megablockbuster while competing against other solid treatments like Rebif from EMD Serono and Pfizer (NYSE: PFE), Biogen Idec's (Nasdaq: BIIB) Avonex, and Bayer's Betaseron, which Novartis (NYSE: NVS) markets as Extavia.
Teva isn't really thought of as a cancer-drug company, but it's clearly pushing in that direction. Today's early stage pipeline-stuffer comes on the heels of Teva licensing OncoGenex Pharmaceuticals (Nasdaq: OGXI) phase 3 cancer drug OGX-011 a few months ago.
Is Teva's push into branded cancer drugs a good move? I'd say it might be the company's only move. Occasionally an opportunity where Teva has experience will come along, like its acquisition of Ratiopharm, but in order to continue to grow, the drugmaker has to expand into other areas of drug making.
As Teva enters uncharted waters, investors should keep a close eye on the company. Gilead Sciences' (Nasdaq: GILD) rather pathetic expansion outside of the HIV drug space is a good example of how there's more to drug development than breaking out the checkbook and licensing drugs.
Large companies' difficulty in expansion is one of the reasons Anand Chokkavelu thinks small caps have the best chance at becoming 10-baggers in 10 years.
