Teva's share price switched to a decline after rising at the opening of trading in New York today, following the release of the company's first quarter financials. Teva outperformed market estimates and raised its guidance for 2018 as a whole. Teva also reported today that it expected to obtain approval from the US Food and Drug Administration (FDA) to market its innovative migraine treatment this year, while some of the analysts covering the company believed that this would come only later. Additional positive news for the capital market was Teva's announcement that it was making good progress in its cost-cutting program and that it expects to meet the plan's targets.
Does all this mean that Teva has passed the turning point? Teva CFO Mike McClellan told "Globes" today, "We are on the way to a turnaround. We have taken an important step, but there's more to do; there's more work. We have more generic competition with Copaxone in store for us, and we have to complete the streamlining plan. We're making progress in it, and we'll launch new products later, but this is definitely a first and important step on the way."
Teva reduced its debt by $1.7 billion to $30.8 billion in the first quarter, with net debt falling below $30 billion. McClellan says that Teva has reduced its debt by $2.2 billion since the beginning of the year, with payment of a further $1.1-1.5 billion likely this year, thereby cutting the debt to $28 billion. "In the medium term, our target is to attain a ratio of net debt to EBITDA of 4 by the end of 2020," he says. This ratio stood at 4.68 at the end of the first quarter, compared with 4.82 at the end of 2017.
Most unusually, Teva's net profit in the first quarter was higher according to GAAP standards than when various accounting items are excluded (non-GAAP). The main reason is that Teva benefited from $1.3 billion received in the framework of various legal settlements. $700 million of this came from Allergan, after Teva demanded certain reimbursements following the acquisition of Actavis. Another $240 million is attributable to the legal proceedings against GSK over heart failure drug Coreg. It can therefore be concluded that the remaining $350 million of this amount came to Teva as a result of the settlement with the Espinosa brothers, who sold Rimsa to Teva in 2015, after which Teva sued them, alleging fraud. Teva has already reported a write-down of over $1 billion on this acquisition, so that it is now getting some compensation for it. McClellan says that at this stage, there is no significant change in the Rimsa deal.
"Globes": What do you expect from the double competition in the Copaxone market, from Mylan, and from Momenta and Sandoz?
McClellan: "We expect to lose a further certain amount of market share, and there will be an effect on pricing. It's too early to say, but in any case, we are being cautious with our guidance in order to avoid surprises."
In the conference call, McClellan said that the launching of Mylan's generic version last October had a greater effect on pricing that on volume, and CEO Kare Schultz emphasized Copaxone's strength in keeping its share of total prescriptions.
Another of Teva's original drugs is Fremanezumab, for treatment of migraine headaches. The market predicted delays in obtaining marketing approval in the US, following faults discovered by the FDA in the plant of Celltrion, which produces the raw material for Teva. Teva announced yesterday that while it would not receive approval in June, as it previously expected, it did expect to receive it during 2018, which is positive news for the company.
How will the competitive environment in the migraine market look after you launch the drug?
"We expect the market to be competitive. Amgen will probably be the first to obtain approval and we hope to obtain approval late this year. We expect the market to be competitive, but this is a great market opportunity. We're currently in a dialogue with the FDA."
In the conference call, you announced that the headcount had been cut by 6,200 and the number of sites closed or sold was 10. What is your target for the rest of the year?
"We promised to reduce the number of employees by 14,000: 10,000 of them in 2018 and the rest in 2019. 6,200 is a step on the way, and we're in the right direction for meeting the target. As for closing sites, we're looking at all parts of the company, but there's nothing immediate at this stage."
Published by Globes [online], Israel business news - www.globes-online.com - on May 3, 2018
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