Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) CFO Michael McClellan arrived yesterday to talk with investors at the annual health conference of Cowen & Co. in Boston, where he provided a number of updates and assessments concerning the company's business. Among other things, he revealed that Teva had discontinued its NTE plan, one of the most important launched by former Teva CEO Jeremy Levin, when Teva regarded combinations of existing drugs aimed at answering existing needs as one of its most important growth engines. McClellan said, "Nothing really ever came out of that," and it was therefore terminated as part of Teva's effort to rationalize its portfolio of products.
Teva said today, "As part of Teva's optimization of its products in research and development, the company has decided to discontinue the regular process called NTE at the time. At the same time, the company is continuing clinical development of a number of products originating in this program."
McClellan addressed this point in his response a question about whether the extensive cutbacks that Teva is carrying out were liable to eventually have a negative impact on its revenue. He answered no, that some of the reduction in R&D expenses would also result from the end of four major clinical trials conducted over the past year (including an unsuccessful trial of Laquinimod and a successful trial of its anti-migraine drug). In any case, he said that Teva would continue its assessment of its portfolio, and discontinue programs in which it believed that the chances of success were poor.
McClellan added that a lot of things done appeared logical, but that the company did not have the luxury of spending money, and would therefore be taking a risk liable to affect its business. He explained that when a company cut back on its R&D, it acquired companies, but Teva would not do this because of its debt. He predicted that renewal of R&D on some of the products would be considered in the future, but candidly admitted that Teva did not have a great reputation for "getting its own stuff through the R&D pipeline anyway," so he did not think that the company was taking too great a risk (by discontinuing certain development programs, S.H.-V.).
The offering is behind us; we're focusing on efficiency
Teva's program of cutbacks is underlined by the need to service its large debt, which amounted to $32.5 billion at the end of 2017. Teva last week completed pricing for a $4.5 billion bond issue aimed at refinancing some of its debt (bank debt and short-term bonds). McClellan said this measure was an important one that would make the company more financially stable. He explained that the company had looked at its projected cash flow over the next four years, which turned out to be slightly lower than the current maturities on its debt, and that Teva had therefore carried out the issue in order to relieve the pressure.
According to McClellan, the fact that Teva's debt was rated "High yield" (junk bond) had made the event an interesting one. Participants in the issue included diverse investors, including high-yield investors and investors in awakening markets, because Israel is considered such a market.
McClellan said that the issue was now behind the company, which would now focus on putting through its efficiency program and launching original drugs, while attempting to repair its generics business in the US. He added that Teva hoped to resume profitable growth within a few years.
As Teva CEO Kare Schultz previously said, rationalization of Teva's basket of products also included attempts to adjust prices for some of its drugs, in contrast to selling a broad basket of products, in which money might be lost on some products in order to make a good profit on another product sold to the same customer. According to McClellan, this approach had exhausted itself over the past two years, and held no advantage. He said that the company had begun telling customers, "We're not prepared to continue losing money on this, so fine if you want to go to other suppliers, but we need something that is sustainable for us, or we walk away." He said that while another supplier would be able to offer the product in some cases, there would also be opportunities to set a more logical price and stay in the game.
Asked about Copaxone, Teva's flagship product, which was already encountering competition from Mylan Pharmaceuticals' generic version and was likely to soon encounter competition from another generic version made by Momenta and Sandoz, McClellan answered that Copaxone was still an important part of Teva's business.
He said that price erosion would increase with more intense competition, and that Teva would consider its steps, and might launch an approved generic version, but that this would not be its strategy at this stage. He added that some Copaxone salespeople had been shifted to promotion of Austedo, another original Teva drug; Teva wants to double the number of users of this drug for treatment of movement disorders from 3,000 at the end of 2017. McClellan explained that the company was supplying the drug free of charge for three months until the patient obtains insurance reimbursement for it, so that revenue from Austedo was lagging somewhat. He said, however, that fine progress was being made in this.
Published by Globes [online], Israel Business News - www.globes-online.com - on March 14, 2018
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