Teva, The Generics Giant Looking for a Comeback

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The Israeli giant began as a wholesale drug business more than a century ago and went on to dominate the global generics market until it lost its leadership position in 2021. After the setbacks of a costly acquisition and several reputational challenges, Teva is pushing to stay on track.

Teva was the global generics king by revenue until 2021, the year it lost its long-held leadership position to the newly created Viatris. Five years earlier, in 2016, the Israel-based company had acquired Allergan’s generic division, Actavis, in a USD 45.5 billion deal that would soon enough both bulk it up and destabilize it.

“The acquisition of Actavis Generics comes at a time when Teva is stronger than ever—in both our generics and specialty businesses,” said Erez Vigodman, the company’s CEO at the time.

Indeed, Teva was stronger than ever that year having posted revenues of USD 19.7 billion the year before the acquisition was completed. Today, however, yearly revenues are down almost one fifth from that number. Counter intuitive as it may be, Teva’s current financial position is a positive development if the size of its debt is considered.

What happened at the end of 2017, two years after the Allergan deal when Teva announced a major restructure, can help explain the fall and resurgence of a company that began as a wholesale drug business that sold medicines from street carts in Jerusalem more than a century ago.

 

Teva in numbers

Teva is an Israeli public company whose shares are listed on the Tel Aviv Stock Exchange. With a portfolio of around 3,600 products, the company says that nearly 200 million people in 60 countries use their medicines every day.

While most of the revenue comes from generics, Teva also competes with specialty medicines, over-the-counter products, and is the main producer of active pharmaceutical ingredients (APIs) in the world. Apart from those businesses, the company does contract manufacturing and out licensing. In all, Teva claims to support three fourths of the top 50 pharma companies.

In 2020, Teva sold 85 billion tablets and capsules, employed almost 40,000 people, invested USD 1 billion on research and development, had 1,160 generic products in its pipeline, and received marketing authorizations for 800 new generic medicines and 100 new specialty medicines.

Loyal to the messaging around generics, it has worked to promote that its products help patients and payers save billions of dollars each year. According to a Teva-sponsored report, the company is responsible for annual savings of roughly USD 43 billion in 14 major markets that include the US, France, Germany, Canada, India and the UK.

 

The restructure

“Teva is taking decisive and immediate action to address external pressures and internal inefficiencies.”

Kåre Schultz​, CEO

“Teva is taking decisive and immediate action to address external pressures and internal inefficiencies,” said CEO Kåre Schultz​, who had just joined the company, in a 2017 statement. “Our new company structure will enable stronger alignment and integration between R&D, operations and the commercial regions.”

Schultz was the fifth CEO to lead Teva in a span of 6 years. Formerly the head of Lundbeck, the CEO was to oversee a big transition. The company would merge its generics and specialty medicines business, organizing instead around three regions: North America, Europe and Growth Markets, in addition to unifying the R&D for generic and specialty products.

The underlying problem was simple: debt. The USD 45 billion Actavis acquisition had compromised Teva’s purse for years.

“It remains our absolute priority to stabilize the company’s operating profit and cash flow in order to improve our financial situation, while being focused on short-term revenue and cash generation,” Schultz said back then. Massive layoffs and the divestment of multiple manufacturing plants followed.

But debt was not the only hurdle ahead. Competition was increasing, markets changing, regulations changing, and, most importantly, self-inflicted wounds.

 

“Reputation” challenges

By the start of 2020, Schultz was quoted saying that the worst was behind. “This situation with declining revenues, declining product, that’s over,” Schultz told Barron’s. “Now we have a stable situation where we’ll be slowly growing both the revenues and the operating profit.”

Stability did follow but Teva’s sales have steadily dropped year-to-year ever since. In 2021, the company had USD 15,8 billion in revenue, down almost USD 800 million from the year before.

Despite the CEO’s enthusiasm, there was a major challenge that had no easy fix and is yet to be resolved: a delicate legal fight related to the United States opioid crisis.

The word reputation is mentioned 26 times in Teva’s latest annual report, mostly in the risk factors section. “Our operations are subject to complex legal and regulatory environments. If we fail to comply with applicable laws and regulations, we may suffer legal consequences that may have a material effect on our business, operations or reputation,” indicates the report.

In early 2022, Teva agreed to pay USD 420 million to settle a lawsuit with shareholders who said the company concealed a price-fixing scheme that allowed it to raise prices on some drugs by more than 1,000 percent.

Regarding the company’s involvement in the opioid crisis, Reuters has reported that Teva believes it would have to pay around USD 2.6 billion “in cash and medicine to settle thousands of lawsuits alleging it and other drug companies fuelled the U.S. opioid epidemic.”

The company’s general manager for Spain and Portugal, Juan Carlos Conde Ibarra, told PharmaBoardroom that Teva is on track with the path set after the arrival of Schultz.

“The most important element to highlight is that Teva is very much on track with the path we set for ourselves five years ago with the arrival of CEO Kåre Schultz. At that time, the financial stability of the organization was in a complex situation due to the acquisition of Actavis. We needed to be much more focused on efficiency and growth; I think it is a very good story because we are right on track to improving our profitability and reducing our net debt. We will continue working on that for the next few years but have already taken important steps in that direction,” Conde Ibarra said.


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