Teva Pharmaceuticals (TEVA) is shifting its strategy on research and may go in for smaller, rather than wholesale, acquisitions in the future, as new CEO Jeremy Levin told Bloomberg and the whole B’nai B’rith last week. One sign of the shift is the arrival of yet another South African in the Israeli company, Jonathan Isaacson, who worked for a contract research organization in Cincinnati. He specialized in getting drugs through phase III trials. Teva yesterday funded research at Rexahn Pharmaceuticals (RNN) to the tune of $750 million and is buying RNN stock at a 20% premium, to help develop RX-3117, a treatment for solid tumors (colon, lung, and pancreatic cancers).

Inspired by Jorge Aura, a Spanish-based blogger, ... I looked into firms where Teva might be tempted to shop. My favorite is PROLOR Biotech, Inc. (PBTH 4.81 Amex), a clinical-stage biopharma developer. It has just patented a long-acting reversible pegylation technology, backing up an earlier patent for the platform, which lets drugs remain active in the body longer. Pegylation may help drugs or proteins penetrate the blood-brain barrier. Its earlier patent, for carboxyl terminal peptides (CTP), stabilizes the therapeutic protein in the bloodstream so it can act longer. This has advantages for drugs delivered by injection (as you need fewer jabs), for example in treating children with human growth hormone or factors VIIa and IX for hemophilia. It also may work as a longer-term way to treat diabetes or obesity.

CTP was discovered by Dr. Irving Boime of Washington University in St. Louis, who examined two hormones produced by the mother’s body during pregnancy, which had similar action but operated for 20 minutes and two days respectively. He licensed the technology to his post-doctoral student, Fuad Fares, an Israeli Arab from Galilee who had a PhD from Haifa’s Technion University. (Merck has the license for CTP for four hormones, which it sub-licensed to Prolor.) Dr. Fares founded the predecessor to Prolor and remains a key executive.

PBTH is Israeli and the technology was developed at Weizmann Institute of Science. What got me excited is that Chairman Phillip Frost of Teva, a savvy biotech investor, is a major holder of Prolor, at about 20%. Next year is make or break for PBTH, which will begin phase III trials of its human growth hormone jab and phase II trials in children and adults of its hemophilia coagulant jab. It will also start an obesity phase I trial. At some point, given its proximity, it is an obvious takeover candidate for Israel-based TEVA. But it is also attractive to other big drug firms like Eli Lilly, Pfizer or Novo Nordisk. The bidding will be fierce. ... Buy PBTH.