The generic drugmaker
Teva Pharmaceutical Industries,
which has struggled for nearly a decade under an enormous debt load and litigation over its role in the opioid crisis, issued upbeat financial forecasts as it reported financial results that significantly beat Wall Street expectations.
The company also announced plans to slough off a division that manufactures active-pharmaceutical ingredients, the building blocks used in the manufacture of prescription drugs, as it seeks to focus on more-profitable operations. Teva currently makes hundreds of different APIs for what it says are more than a thousand clients.
Teva’s
American depositary receipts were up 3.1% on Wednesday morning. The stock is up 34% since the start of 2023, but at $12.10, it remains far below its level in mid 2015, when the company announced what has turned out to be a disastrous plan to buy Allergan’s generic drug business for $40 billion.
At the time, Teva’s ADRs traded in the high $60 range. Debt from the deal crippled Teva’s business, and the Allergan division’s sales of generic opioids made Teva a major target of litigation over the opioid crisis.
Nine years later, Teva appears to be beginning to climb out of the pit it dug in 2015. The company has agreed to an opioid settlement worth more than $4 billion, to be paid out over 13 years.
On Wednesday, the company said its fourth-quarter revenues were $4.5 billion, soundly beating the $4 billion
FactSet
consensus estimate. Non-GAAP diluted earnings for the quarter were $1 per share, beating the consensus estimate of 77 cents.
“No one’s talking about debt, or opioids or even Humira…because there’s so many other good things that are happening in this company,” Teva CEO Richard Francis told Barron’s listing three key worries that dogged the stock a year ago. (Teva’s biosimilar competitor to AbbVie’s Humira has been delayed due to inspection issues at its partner’s manufacturing site, though Teva still says it aims to launch the biosimilar this year.)
Francis acknowledged that the strategic shifts he has undertaken at Teva have changed the nature of the company, which has historically specialized in generic drugs. “Teva should be considered a pharmaceutical company that has a world-class generics business, but also a fast-growing innovative [medicines] business,” Francis said.
The company said its debt was $19.8 billion as of the end of 2023, down from $21.2 billion a year earlier.
Teva, based in Israel, acknowledged Wednesday that the situation there is “evolving.” The company said it has backup locations where it can manufacture key products in case of disruption, and that the impact of the war in 2023 had been immaterial. “Such impact may increase, which could be material, as a result of the continuation, escalation or expansion of such war,” the company said.
Speaking to Barron’s, Francis said that only 2% of Teva’s revenue come from Israel, and only 8% of its manufacturing is done there. “Our business continuity plans we put in place back in October, and so I think we’ve de-risked that significantly,” he said.
Teva had announced a strategy in May under which it plans to emphasize its branded medicines, while slimming down its generic medicine business. Profit margins on generic medicines are thin, and have grown thinner as prices of generics have deflated.
Teva said Wednesday that the plans to divest its API business lined up with that strategy. The company’s CEO, Richard Francis, said on an investor call that the divestment would allow Teva “to focus its capital on driving the Pivot to Growth strategy, primarily around our innovative and generics portfolio.”
Francis told Barron’s that Teva’s API business is a “small source” of the active-pharmaceutical ingredients that the company uses in manufacturing its medicines. “We don’t use it on a scale that would justify having an API business of that size,” he said.
The French drugmaker
Sanofi
spun off its own API division in 2022. It is now an independent public company called
EuroAPI.
Teva said it planned to divest the business in the first half of next year. It didn’t say what it plans to do with the business, or how much it intends to receive through the separation.
Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com
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