Kare Schultz signals end to time at Teva

Teva Pharmaceutical Industries (TASE: TEVA; NYSE; TEVA) held a press conference today at its new headquarters in Tel Aviv, and presented its goals for the coming years, which it had provided in its latest financial statements. Teva expects to reach an operating profit margin of 30% by 2027, a debt to EBITDA ratio of 2, cash-to-earnings of 80%, and to return to revenue growth after several years of decline.

Teva CEO Kare Schultz presented the company’s progress since 2017, when he took up the post. “In 2027, we set goals. One of them is optimization of the business. 80 production sites – we shut 53 of them and the number will continue to fall by another ten. The reason that this is important is that we make very many products, but the more production sites there are the more expenses there are. The basis was the many acquisitions carried out with the cash flow from Copaxone. If there isn’t full integration, there are too many sites. The optimization will continue, not something dramatic, we’re not talking about a restructuring.”

Schultz also revealed his plans for the future. His employment contract with Teva will end in November 2023, and Schultz said that it would not be renewed, but that he would probably remain as a director at Teva.

On Teva’s legal embroilments, Schultz said, “In 2017 I wasn’t aware of how powerful it was, the legal issues. I didn’t know that the opioids story would become so challenging. The good thing is that we have reached an agreement in principle. The next thing – we had terrible debt of $34 billion. Today interest rates are rising. When we took it, it was at interest rates of 2-3%. Today, our debt is at interest rates of 8-9%. We have been very successful in avoiding the debt trap.

“Another good story is the reduction in the cost base. Unfortunately, that also included a substantial reduction in the workforce, which now numbers about 28,000. The result of all these processes is that, despite the loss of revenue form Copaxone, we have succeeded in generating a cash flow that can be used to reduce the debt. With the help of the streamlining we restored operating margins. Next year we’ll reach 28%.”

Schultz also spoke about the generics market, saying, “We’re the leaders in generics, and we’re working on being the leaders in biogenerics. More than 95% of the drugs in the world are no longer covered by patents. Without generics, the health system doesn’t work. We saw with Covid. If we hadn’t been able to produce the drugs, together with other manufacturers, health systems around the world would not have been able to treat many Covid patients. At Teva we have three main segments: generics, biosimilar, and specialty drugs. We have an exciting pipeline.

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“Sometimes I’m told that generics is not a good business. But it’s one of the most stable businesses that exist. I admit that if you look at our stock it isn’t obvious, but why is the business stable? New products will come onto the market, and products come out of patent, so there will always be a stream of products on which the patent has ended. Over the next five years, we’re talking about drugs to the tune of $188 billion.”

Schultz added that twenty years ago more and more biological drugs were developed, and so in the coming years many biological drugs will lose patent protection. He said that until 2027 the generics market was expected to grow by 4.1% annually on average, while the biosimlar market would grow by 16.8%. “The biosimilar market is a market with fewer projects, but bigger ones. You have to do the whole development process and carry out a trial, so it’s more expensive. We know how to do this. We’ve invested about $1 billion in our biological production capabilities.” Schulz said that in original drugs too “we’re doing a lot of exciting things.”

On Teva’s activity in Israel, Schultz said, “Our key products Copaxone and Azilect came from development in Israel. In Israel there are places with innovation at a high level. We hope to find ‘the new Copaxone’ here. We have a product at an early stage in oncology, in development with the Weizmann Institute.”

Profit margins will continue to improve”

As mentioned, Schultz talked about financial goals for the coming years. “Up to 2027, the profit margins will continue to improve, the debt will continue to fall, by $10-12 billion, and the new item is growth in revenue. We won’t make large acquisitions, but we will make licensing agreements for products, including products at advanced stages. All in all we have created a sustainable base for a return to growth. Of course we are not happy with the present level of the stock, but we believe that we are in a good position for the future. We are convinced that the ‘penalty’ on our valuation because of the legal proceedings will eventually disappear.”

Asked about the legal proceedings concerning the sale of opioid pain relievers, a matter that has weighed on Teva’s share price for several years, Schultz responded that an agreement in principle had recently been signed to put an end to the affair. Schultz said that there were several stages before finalization of the agreements, and that he estimated that the first payment would be made in the course of next year.

Schultz presented the company’s targets for 2027, but his contract with Teva will end (unless it is extended) in November 2023. Asked whether he will be with the company in 2027 in order to reach these targets, Schultz responded, “The goals are set on the basis of a strategy developed by the management and the board. Every year, we have a strategy meeting, and this year we set long-term goals, but this is not only to do with me but with the entire management. The goals will remain valid until 2027.”

Published by Globes, Israel business news – en.globes.co.il – on September 18, 2022.

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