Several years ago, Teva Pharmaceuticals Industries (TASE: TEVA; NYSE: TEVA) set itself three long-term financial goals: an operating profit margin of 28%; a cash-to-earnings ratio of more than 80%; and a debt/EBITDA ratio below three.
According to its plans, Teva is supposed to achieve these goals by the end of 2023, and at JP Morgan Healthcare’s annual conference, Teva CEO Kare Schultz was asked where Teva aspires to be after that.
Schultz promised that Teva would set new financial targets and, strategically, continue to focus on improving profitability, as well as revenue growth (which has been weak in recent years). “We’re not a type of business where we’re aiming for phenomenal double-digit growth. But we want to go for single-digit growth and we want to do it organically, globally…. So you’ll consider modest revenue growth, continued margin improvement, strong cash generation,” Schultz said.
Once the current targets are achieved, Schultz said, “Then we can start thinking about allocating capital, money to shareholders, and we can also start thinking about whether these are really good business opportunities to do, maybe to smaller investments. acquisitions and so on. But the main driver, in my opinion, is to continue to reduce debt.”
Teva stopped paying dividends at the end of 2017, when Schultz’s huge rationalization plan was launched. Teva’s current market capitalization in Tel Aviv and New York is $10 billion, down 34% since Schultz became the company’s CEO in November 2017, and 86% below its 2015 peak.
Aside from the possibility of resuming dividend distribution and making acquisitions after current financial targets are met, what else did Schultz have to say?
Opioid trial in New York: “Serious grounds for appeal”
Schultz opened his presentation at the conference by discussing the US opioid lawsuits that have plagued Teva for several years. Teva is one of a long list of respondents to lawsuits in the United States over the marketing of addictive opioid painkillers. The company recently suffered a legal setback in a procedure in New York, against which it is appealing.
Schultz described the litigation as “a hot topic that I would say everyone is interested in,” and mentioned that Teva was a party to the litigation along with other drugmakers. He also mentioned the agreements that Teva has reached in some US states, as well as the draft general agreement that was agreed to more than two years ago but was finally signed. “We’re still in discussions…trying to come to an appropriate compromise on a national settlement that really could be in the best interests of all stakeholders,” Schultz said.
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He also hinted that some would try to argue that a small portion of the settlement was in cash ($250 million), and that it was mostly Teva products, worth $23 billion. dollars at wholesale prices, because the cash component is what determines the fees of the consultants involved. Still, Schultz added that he doesn’t believe either side will benefit from a protracted legal process and that it’s in everyone’s interest to reach a settlement.
At the jury trial in New York, Schultz said, “A lot of interesting things happened in this trial. I’ll just mention that we asked for a mistrial, and that’s basically because of the closing remarks , the state produced data on the opioid volumes that they claim several of the Teva companies sold, and those volumes were completely wrong and they were unwilling to reveal what they were going to present…
“So here we are, you could say, asking for a mistrial which will be heard by the judge in February, assuming that works out there will be a new trial. If not, there will be a verdict, we will appeal there. And then we hope that based on that appeal, the second part of the trial will be pretty much suspended until that appeal has been heard.”
Schultz added in response to a question that “we have very, very serious grounds for appeal” and sketched out a timeline for the process that could span two years or more, so it looks like these proceedings will occupy Teva for a long time to come.
Optimization: 100 sites closed
Regarding the optimization of Teva’s activities, Schultz mentioned that Teva has closed or sold 100 sites so far, almost equally divided between production, R&D and administrative sites. Ten other production sites are expected to be closed in the coming years.
“And those of you who remember the goals we set for ourselves at the start of 2018, will see that we still have the same goal for the end of 2023, an operating margin of 28%, and we are on track to achieve it. So it’s a simple way to explain that we’re doing everything we can to improve the business by consolidating and optimizing the business,” Schultz said. , but in the third quarter of 2021, it was 26.8%, on a non-GAAP basis.
Debt: reduced to $22 billion
Regarding Teva’s debt, which was $34 billion in 2017 and had been reduced to $21.7 billion in the third quarter of 2021, Schultz said Teva would continue to reduce it. Referring to his recent recycling of $5 billion in debt, Schultz said: “We refinanced $5 billion, so we basically issued $5 billion in sustainability bonds. That means you have a bond and of course you pay a normal interest rate but you also commit to meeting certain targets and if you don’t meet these targets you pay a penalty.
“Now we have committed to three goals: one for greenhouse gas emissions and two for access to medicines in low- and middle-income countries. And this is the first time that a company of generic drugs issues this type of bond. But it is also the first time in the pharmaceutical industry that we have both social and environmental objectives… So we are very proud of that.”
Schultz added that as Teva’s debt went down, the interest rate it was required to pay also went down, because its risk premium went down. Repeating promises made in previous years, Schultz said the company would continue to reduce debt and did not plan to make a stock offering.
Teva is not expected to show growth in its 2021 financials. Revenue is expected to be $16 billion to $16.4 billion, marking a fourth straight year of decline. Schultz mentioned Teva’s growth drivers, including its innovative drugs Austedo and Ajovy, and biosimilars. On Ajoby, a migraine treatment, Schultz said the company continues to aspire to a one-third market share in Europe and the United States in the coming years, and for biosimilars (generic biologics) he said Teva was well positioned for growth.
Schultz also mentioned an additional original product, temporarily named TV-46000, for the treatment of schizophrenia, which awaits US marketing approval, expected in the first half of this year. “There is a huge need for better long-acting treatments for schizophrenia,” Schultz said.
Published by Globes, Israel business news – en.globes.co.il – on January 13, 2022.
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