At the JP Morgan Healthcare Conference, Teva CEO Kare Schultz said the company was on target with streamlining and debt reduction and outlined its strategy for the Chinese market.
In his presentation, Schultz gave a detailed account of the streamlining program that Eva began in 2017, mentioning among other things that thirteen production sites had been shut down or sold and that ten more were in the process of shut-down or sale, and that the goal of annual cost savings of $3 billion had been achieved.
Schultz pointed out that Teva had grown through more than twenty acquisitions in twenty years, resulting in too many offices and too many R&D locations, many of which had now been closed. “We will continue optimizing the manufacturing footprint. Again, in connection with the full-year earnings in February, we will give you a more precise picture of what the plans will be for the coming years in order to optimize the gross margin and the manufacturing setup.”
On Teva’s debt, Schultz reminded his listeners that it had ballooned because of the acquisition of Actavis in 2016 for nearly $40 billion and that over the past two years the company had recycled debt, and had reduced its debt over the period through assets sales and through its cash flow, the goal is to continue to reduce it. At the end of the third quarter of 2019, the debt totaled $26.9 billion.
Schultz highlighted Teva’s entry into biosimilars, with the launch in November of Truxima, equivalent of Rituximab for treatment of blood cancers and inflammatory conditions, which he said was successful. “There is a strong future the way I see it for both traditional generics and biosimilars in the US and the pricing has now stabilized,” he said, adding that in Europe “the situation has been calmer.” He said that there was now low single-digit growth in European generics “so we have a very stable, solid business and we are still churning out you know hundreds of launches every a year.”
A new market for Teva will be China, where the company has never been a significant player. “I’m not a strong believer in joint ventures in this kind of markets,” Schultz said, “So we’ve decided to do it organically and we’ve had the luck that the Chinese government had realized that certain products have never been launched in China. So the government has made a list, it’s publicly available, of pharmaceuticals that they would like to have in the Chinese market, where nobody ever wanted to spend the money doing the Phase III trials in the whole very, very long regulatory process in China.
“It turns out that because we do so many products, we do some of these products as well. So we’ve just launched Treanda in China. We have Austedo that has been filed. And the benefit here is we can do that without doing any trials in China because the Chinese authorities have realized they would like to have these products in the marketplace for the benefit of patients.
“So that means that we’re slowly building up. These are not big numbers today but these are 100% controlled numbers from our side. We don’t have a partner that’s controlling things. And we will be growing very big in terms of percentages but from a small base, but it will be profitable the whole way. And in five, ten years China hopefully will be a significant part of our business.”
Schultz summed up by saying, “So what I think I have proven to you is that we’ve done the restructuring. We’ve done exactly what we promised to do. We promised to reduce the spend base with $3 billion, everything included was $16.3 billion in ’17. It has to be less than $13.3 billion in ’19. And I can promise you that’s the case. We’ve also handled the debt nicely, taking it down more than $8 billion over two years and we’ll continue to do so. And that means, of course, our ratios on the debit side will continue to improve over the coming years. And we also now have a situation where the drag versus the growth is looking positive. So we’re expecting to see low revenue growth in 2020. And then, of course, higher once we get into the future simply because of the fact that the drag from Copaxone disappears more or less, while we still see Austedo and Ajovy growing and while we see the combination of US generics and biosimilars also having a very stable to the positive outlook.”
Teva long (Buy)
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