Bloomberg

Teva Pharmaceutical Industries Ltd.’s (NYSE: TEVA) $40.5 billion purchase of Allergan Plc’s generics unit, which closed on Aug. 2, doesn’t signal that the Israeli drugmaker will let up its quest for innovative branded medicines.

Efforts to introduce new copycat drugs and integrate operations gained through its largest acquisition “doesn’t mean we confine our business to just generics,” chief executive officer Erez Vigodman said in an interview at Teva’s headquarters in Petach Tikva, Israel. “The strategy and vision are much broader.”

Teva reclaimed its spot as the world’s biggest maker of generic medicines with the purchase, but the transaction comes at a difficult time. Copaxone, the blockbuster multiple sclerosis injection that at one point delivered half the company’s profits, faces the threat of cheaper copies. Vigodman’s comments suggest he won’t hesitate to resort to one of Teva’s favorite tools -- acquisitions -- to snag new products. In 2015, Teva announced plans to buy health care software company Gecko Innovations Inc. and also formed a partnership with Takeda Pharmaceutical Co. to sell generic drugs and certain off-patent medicines in Japan. Teva also agreed to buy Mexican drugmaker Representaciones e Investigaciones Médicas SA.

The company will target “attractive specialty assets, or branded drug assets or pipeline assets” that fit with the disease areas it’s looking to treat, the 56-year-old CEO said. The drugmaker seeks medicines for pain, migraines, neuro-degenerative and movement disorders, as well as respiratory diseases.

Even so, integrating Allergan is Teva’s No. 1 priority, according to Vigodman, who’s pledged a boost in revenue of as much as 40 percent by 2019.

The macroeconomics underlying Vigodman’s rationale for the acquisition have worsened since an accord was announced last year. U.S. regulators have sped up approvals for generic drugs, creating more competition and driving down costs, while forcing Teva to divest some assets to overcome antitrust concerns.

Vigodman counters with a different view. The generics industry is growing and will reach about $300 billion by 2020, and Teva plans to take advantage of that by launching between 1,000 and 1,500 products every year, mitigating an expected 5 percent decline in prices.

The Allergan deal has already put Teva in a stronger position, he says. In the U.S. alone, the company has 338 treatments awaiting approval from the Food and Drug Administration, and has been first to file on about 115 applications to introduce generic versions of drugs.

Still, Vigodman needs to win back investors. Concerns over declining drug prices and the delays in obtaining U.S. antitrust approval for the Allergan deal sapped enthusiasm. Teva’s American depositary shares now trade 26 percent below the record high they reached after the agreement was made public in July 2015.

“It was not an easy year,” the CEO acknowledged. “It took longer than expected, it exercised strong pressure on us. But we are ready to go now.”

Looking to the future, Vigodman describes an industry in which patients are empowered by technology and expect drugmakers to deliver a range of services that extend beyond pills and injections.

“Patients are more connected, informed and empowered,” he said. “They are expecting and demanding more than just medicines.”

Technology is driving the transformation, Vigodman said, echoing remarks from other pharma industry executives. Novartis AG, which has a similar mix of generics and branded drugs in its portfolio, has a tie-up with a Google Inc. business to develop smart contact lenses with embedded electronics to monitor insulin levels for people with diabetes, or to restore the eye’s natural focus in people who can no longer read without glasses.

“The surest sign an industry is on the verge of disruption is the proliferation of tech entrepreneurs backed by venture capital and driven by consumer demand,” he said. “That’s exactly what we’re seeing in our industry.”

-- Additional reporting by Mergers & Acquisitions' Demitri Diakantonis.

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