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Executive Summary

Generic drug manufacturer and marketer Lemmon is awaiting ANDA approval of its generic sucralfate following a preapproval inspection by FDA, Eli Hurvitz, president and CEO of Lemmon's parent company Teva Pharmaceutical, told securities analysts Nov. 19 in New York City. Hurvitz reported that Lemmon filed the ANDA for sucralfate "more than one year ago" and that "two months" ago the company received a preapproval inspection. "We still sit...and wait," he remarked. Lemmon is one of several generic firms going after the sucralfate ANDA, which required a clinical comparison with the brandname products instead of bioequivalence data. Biocraft is also believed to have a sucralfate ANDA pending. The return from the higher-than-usual R&D investment in generic sucralfate should be high, Hurvitz said, placing the overall value of the generic sucralfate market at "a few hundred million dollars." He acknowledged that Lemmon "won't get that" but indicated that Teva would be happy with a piece of the market. Israel-based Teva is the majority owner of Lemmon in a joint venture with W. R. Grace. In addition to the sucralfate ANDA, Lemmon has 43 ANDAs pending at FDA. The company has not received a new ANDA approval in nearly two years. Hurvitz noted that Sellersville, Pa.-based Lemmon has another 51 generic drugs in development, while Teva is developing 53 others in Israel. ANDAs for the majority of these 104 developmental drugs are expected to be filed within the next three years, Hurvitz said. Asked what number of ANDA approvals the company forecasts over the next six to 12 months and the expected impact on sales of these approvals, VP and Chief Financial Officer Dan Suesskind said: "If three products are approved in the next six months [then] we are more than okay in [1991]...That means that Lemmon may have the profits of Teva." Teva's net income through nine months of 1990 was $12.5 mil. Despite the delays in Lemmon approvals caused by the ANDA slowdown, Hurvitz commented during Q&A that "our situation may be better [than other generic firms] because" the company has remained "clean." FDA reviews of Lemmon regulatory procedures found no adverse material findings ("The Pink Sheet" Dec. 11, 1989, p. 7). In fact, Hurvitz says the "$20 mil.-plus" that the company has invested in generic pharmaceutical R&D in 1989 and 1990 while the approvals process has been on hold has put Lemmon in good position for when the ANDA gates reopen. Noting that the R&D expenditure without a return "is the bad news," Hurvitz said "the good news is that not too many [generic] competitors can afford this." He went on to predict that the ANDA approval delays would narrow the competitive field for generic drugs. "Fortunately, we can afford to invest in R&D and we're doing it in quite a big sum," he said. Teva spent $14.8 mil. on R&D in 1989. The company does not break out R&D figures for Lemmon. Acquired by the Teva and W. R. Grace joint venture TAG Pharmaceuticals in December 1985, Lemmon has shown steady sales growth since the acquisition: from $25.6 mil. in 1985 to $60.5 mil. in 1989. Sales through nine months of 1990 totaled $51.5 mil., a 14.4% rise from $45 mil. in the comparable period of 1989. At the end of 1989, Lemmon was manufacturing 38 of its own generic products in 68 dosage ranges. The company packaged and/or distributed 10 products comprising 24 dosage forms manufactured by Teva in Israel. Last year, Teva products accounted for 23.4% ($14.2 mil.) of Lemmon sales and have grown steadily as a percentage of sales since 1986. Lemmon is 51.2% owned by Teva. On the horizon for Teva are a push in the U.S. into niche product ethical pharmaceuticals and expansion in Europe through Lemmon-style joint ventures, Hurvitz told the analysts. Teva initially is focusing its efforts on two ethical drugs: COP-1 for multiple sclerosis and Osteo-D, a vitamin D derivative. Both products have a potential for sales of "tens of millions of dollars," Hurvitz predicted. There are approximately 200,000 MS patients in this country, Hurvitz said, and another 100,000 dialysis patients who would be potential users of Osteo-D. During Q&A, Hurvitz estimated the combined annual sales potential of the two products at $70-$90 mil. COP-1 (copolymer 1) will soon move into Phase III clinical trials in the U.S. and Europe. Osteo-D (24,25 dihydroxycholecalciferol) is sold in Israel, is in clinicals in the U.S., and is being registered in European markets. Hurvitz forecast worldwide registrations and launches between 1992 and 1996 for the two products. In the U.S., both drugs are designated as orphan products, Osteo-D was designated in 1987 for the treatment of uremic osteodystrophy associated with renal failure. Lemmon is pursuing late stage efficacy trials with Osteo-D for the orphan indication. The Teva exec went on to explain his company's niche strategy for ethical drugs. "We have defined a niche by the number of doctors that have to be detailed. We cannot have the regiments of detailmen to go and visit 100,000 GPs or 200,000 GPs. But we do have the [capability] and may even be better than others" in smaller markets, he explained," because it is our business today to approach, for example, in the dialysis business, 1,500 doctors. That's exactly what we know how to do. Or we visit neurologists; that's something like 150 opinion-makers plus another 500 that are dealing with multiple sclerosis." The company's other major strategic thrust is expansion in Europe. Teva is establishing joint ventures in Germany, France and "hopefully in England," the Teva exec said. He noted that Teva is "studying" the situation in Eastern Europe and already last year entered into one joint venture there. "We might have another few joint ventures there," Hurvitz said.

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