July 11, 2019

Pharmaceutical company Rejuvenation

Teva Pharmaceuticals, the biggest generic company in the world current unfortunate situation was as a result of numerous fatal conditions that led to the company 10 years low stock price. Subversion of Teva supremacy just before Actavis/Allergan deal, increasing competition in the generic space, lack of pharmaceutical experienced top management team and absence of diversification towards innovative business, is what lead to the current turbulence, or shall I say tsunami at the company. Please don’t eulogize the company yet, Teva still holds substantial accelerators that can stabilize the income and serve the huge $32 Billion debt. For those who didn’t know the company holds 311 product applications awaiting FDA approval, out of 98 of them are first to file, that attend to grant the company 6-month exclusivity at launch. This is the cream in the generic industry since this position allows the company to sell the products at a lower discount than the 70-90% generic discount expectations, and by that to increase the profits and conquered a leading market position.

Another major accelerator is the strategic collaboration Teva announced lately with Celltrion to exclusively distribute Herceptin and Rituximab in US and Canada. I believe that Teva can launch both products first in the market, and leverage the knowledge and quality that Celltrion represents in the biosimilar space towards supremacy in this positions. I believe we can expect mild competition especially in the first years of launch, where only companies with high presence and experience in the US pharma field could translate approvals towards substantial market shares and sales.

The third engine believes to be what Teva management failed to embrace and invest in a balanced way compared to the generic business and this is Teva innovative unit. I believe that Teva CGRP product for a chronic & episodic migraine could deliver the $1 billion sales expectations or above especially if approve for cluster headache. The Huntington product should generate the same expected sales of $1 billion if approved according to the plans. This two drugs believed to inherit Copaxone sales lost in the coming years.

Synergies cost saving between Teva and Actavis/Allergan should lead when completed after 2 years to a cost saving of approximately a billion dollar. Unfortunately below Teva expectations, but indeed a substantial cost saving that will increase the net profit.

Teva is a cash machine that generates about 6 billion dollars in profit a year, and the huge goodwill impairment is what really lead the company to write the big loss we saw in the second quarter of 2017. If we analyze it closely, the company can benefit significantly from a tax stand point as part of the reduction. I do believe that if Teva won’t rethink outside the box of her core generic business, the company might suffer from more impairments and price erosion. I do believe that the US consolidation buying groups will differentiate between quality generic suppliers and fewer quality suppliers, there Teva holds superior position compared to other companies in the industry. The standardization of the generic industry will eliminate some of the competition coming from emerging countries as India and China, an act that will eventually relief the generic price pressure and will benefit Teva. The hybrid generic and NTE robust portfolio that Teva inherited from Actavis/Allergan, (some protected by 5 years market exclusivity), has to be leverage and managed properly to maximize market shares capturing and to position the products as the gold standard of care in their segment. The pharmaceutical world moves towards the patients’ unique needs where patient compliance, the convenience of drug usage and patient safety, all key factors illuminate Teva advantages, where the company holds a substantial portfolio of drugs that differentiate from the competitors and characterized in higher profitability.

As a summary let’s not eulogize Teva yet, with the right captain this huge ship could navigate successfully in the current generic storm towards better blue oceans.Your’s Shlomo Sadoun Sk-pharma group.