Battered by a Tough Generics Market, Teva Pharma Emphasizes Biologics

Teva logo on side of building

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Israel-based Teva Pharmaceutical is the largest generic drug company in the world. One in 10 drugs taken in the U.S. are manufactured by Teva, but as generic drug prices are forced downward, the company has struggled. At its recent financial report, the company indicated it was going to shift some of its energies toward the more lucrative biologics market.

For the fourth quarter, the company reported revenues of $4.6 billion. For the full year, it reported $18.9 billion. For its 2019 outlook, it protected revenues of $17 to $17.4 billion. Annual revenues dropped 16 percent since 2017, with adjusted earnings per share dropping 27 percent.

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Under the leadership of chief executive officer Kare Schultz, who took the reins of the company in 2017, Teva plans to shift some of its energies away from generics and to focus on branded, innovative drugs, particularly the higher-margin biologics.

Schultz told the Wall Street Journal he expects eventually half the company’s revenues will come from biologics.

When Schultz took over leadership, he initiated a cost-cutting program that cut about 14,000 jobs, about a quarter of the company’s headcount. He also shuttered up to 25 of Teva’s 80 manufacturing plants and several research centers. He indicates the turnaround is progressing. Cost cuts are ahead of schedule, debt is down and revenue is projected to start moving back up in 2020 as the generics business resumes growth.

“The R&D strategy was really all over the place,” Schultz told the Journal.

Schultz and Teva aren’t abandoning generics. He indicates he thinks the price declines that have cut the U.S. generic market in about half over the past five years is leveling off.

The Wall Street Journal writes, “Teva doesn’t have the financial firepower to buy new drug prospects and has had to cut its research budget. Mr. Schultz has halved the size of the company’s research pipeline to focus purely on biologic drugs. It now has 25 drugs in development, mostly at an early stage.”

Schultz calls 2019 “a trough for our business, a year in which we will experience similar challenges to those of 2018 including the continued erosion of Copaxone in the U.S. and Europe as well as the introduction of generics in the ProAir market. Throughout the year, we will continue to execute against our restructuring plan goals, including the optimization of our global portfolio and network, as we focus our efforts on generating cash to reduce the company’s debt.”

On the other hand, he noted that 2018 was the first year of his restructuring plan and “we have met or exceeded all of our key financial targets for the year. The full year yielded a cost base reduction of $2.2 billion, exceeding our 2018 target, and we are well on track to deliver the total $3.0 billion reduction in 2019 as compared to the 2017 spend base.”

Ajovy was launched in the U.S. in September and is “performing very well.” The company will focus on growing Ajovy and continuing to promote Austedo.

R&D expenses decreased in 2018 by 32 percent compared to 2017. Selling &and Marketing (S&) expenses also decreased by 14 percent. General and Administrative (G&A) dropped by 11 percent.

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