Teva will reduce the generic drug trade

Teva’s ADR rose 2% to $8.30 in Thursday afternoon trade, after rising as much as 7.75% earlier in the session.

The drugmaker has been struggling since a series of ill-advised acquisitions a decade ago, notably the decision to buy Actavis Generics for $40.5 billion in 2016.

Debt from the deal crippled the business, and Actavis’ sales of generic opioids in the US made Teva a prime target for lawsuits brought by states and local governments over the opioid crisis. Teva is currently finalizing a $4.3 billion settlement of its opioid liabilities. The company has not admitted any wrongdoing.

Now, under a new CEO, Teva is looking to turn the page with a new strategy that emphasizes the company’s pipeline of new therapies — and aims to shrink its core generic portfolio to improve profit margins in that segment. While generics provide important and inexpensive alternatives to higher-priced brand-name drugs, the margins in this business can be very slim.

A New York Times report on Wednesday highlighted a shortage of generic drugs, which the report said is at record levels, prompting the White House and the US Congress to turn their attention to the generic drug market.

In an interview with Barron On Thursday afternoon, CEO Richard Francis said any discontinuation of generic products would be done in a way that would not cause shortages. He noted that a smaller group of generics would be more resilient in the face of shortages.

“We like to think that a manufacturing network, which is designed and set up in a way to sell and manufacture molecules that we’re really committed to, allows us to create more capacity and flexibility in our supply chain,” said Francis.

At a news conference Thursday morning, Francis said Teva’s withdrawal from some generic drugs would not affect the generic drug supply.

“The reason for the low profit margin on these products is because there are so many manufacturers supplying these drugs,” Francis said. “I think when we get out of these markets, we will quickly be replaced by many other manufacturers who are making and supplying these products.”

The company’s generic drug line will instead focus on “high-value products,” Francis said, and Teva will now focus its generic drug research and development on the 60% of products that lose patent protection, down from 80%. The company will primarily work on complex generics – specifically long-acting drug and injectable device formulations.

“As we look across our portfolio, there are some molecules that are offered by multiple manufacturers,” said Francis. Because of that, it is largely a low-margin business; There is an oversupply of these products. And because of that, we’re going to remove those from our supply chain. This takes time. This is something we have to do over a number of years.”

The company said it plans to reduce its generic manufacturing footprint to between 40 and 44 locations, from its current 52. While Teva currently spends about 40% of its R&D budget on generics, it plans to spend only 10% to 20% of its R&D budget on generics by 2027, as it reallocates to innovative R&D drugs.

In addition to changing its generic offerings, Teva said it plans to focus on the brand-name and non-brand drugs it currently sells — including Uzedy, a newly approved treatment for schizophrenia. It also plans to expand its line of new drugs, with a focus on neuroscience and cancer.

While the company said it was “committed to continuing to service its debt,” it would also commit resources to “finance growth.” The company had $18.5 billion in debt in the first quarter of this year, or 4.25 times Ebitda, or EBITDA. It says it aims to have net debt twice as high as Ebitda by 2027.

“We know very clearly where we need to focus our capital and our attention,” said Francis. “And if we do that, and we’re successful, I think we’re going to grow our business in the short, medium and long term, and on the bottom line.”

Write to Josh Nathan Kazis at [email protected]