If you can't beat 'em, join 'em, goes the old saw. Or in Teva Pharmaceuticals'
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
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
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'
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.
Pfizer is a Motley Fool Inside Value recommendation. Novartis is a Global Gains selection. Try any of our Foolish newsletters today, free for 30 days. Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.