A new threat to Teva's Copaxone looms large: Cladribine pill from Merck for multiple sclerosis

Merrill Lynch was astonished at the intensity at which investors in Teva Pharmaceutical Industries reacted to the mere threat of earlier-than-expected competition to Copaxone, the company's flagship MS drug. Fear about the product's future are overblown, concluded equity analyst Gregg Gilbert. Yet he has lowered his 12-month price target for Teva from $75 to $68, and another threat to Copaxone has suddenly appeared on the horizon.

Like all MS treatments until the advent of Novartis' oral drug Gilenia in June, Copaxone is administered by injection. (Gilenia, administered in capsule form, is in the final stages of review by the American watchdog's advisory council. )

Yesterday German company Merck announced that the U.S. Food and Drug Administration has given its MS pill cladribine priority review status. That means the drug watchdog is promising to review the cladribine case within six months. The FDA fast-tracks a product's review if it has the potential to significantly advance treatment of a condition. Merck is expecting results of the review in the last quarter of this year.

Considering that multiple sclerosis is incurable and medicines are administered throughout the patient's life, pills instead of needles have great potential to improve quality of life. Analysts are expecting that cladribine could become Merck's latest blockbuster.

John Newman, senior pharmaceuticals analyst at Oppenheimer, thinks the launch of Gilenia will reduce Copaxone sales in the United States by 10% to 20% in 2011, to between $1.6 billion and $1.9 billion. And that's the optimistic scenario.

The pessimistic scenario is that Gilenia will depress U.S. sales of Copaxone by 20% to 30%, which would slash revenues from the drug to $1.46 billion to $1.67 billion.

Teva officials had classified cladribine as a lesser threat. Chief financial officer Eyal Desheh said in early 2009, following the success of Merck's crucial Phase III clinical trials, that cladribine is an old molecule given by injection to treat hairy-cell leukemia and that it causes severe side effects such as immune-system impairment.

For all that confidence, on Wednesday Teva stock sank 2.7% on the Tel Aviv Stock Exchange. Yesterday it fell another 3.9%.