Teva unveils streamlining strategy
The company said it plans to streamline operations, cut costs and make targeted acquisitions to improve profitability
Teva Pharmaceutical Industries, the world's biggest maker of generic drugs, unveiled an ambitious plan on Friday to reshape the company as it faces increased competition for its top-selling multiple sclerosis drug Copaxone.
The company said it plans to streamline operations, cut costs and make targeted acquisitions to improve profitability. It will discontinue certain research programs and integrate functions ranging from ordering to inventory control.
Teva also said profit excluding some items would be between $4.85 and $5.15 a share in 2013, while revenue would be $19.5 billion to $20.5 billion. Analysts were on average forecasting earnings of $5.71 a share and revenue of $20.85 billion, according to Thomson Reuters I/B/E/S.
The lower-than-expected forecast brought Teva's share price down in Tel Aviv Stock Exchange trading yesterday. It closed at NIS 153.40, a loss of just over 1%.
Teva will outline its plans in detail at an investor day on December 11. In the meantime, it is predicting that sales of Copaxone will fall somewhat in 2013 as it faces competition from new drugs for multiple sclerosis. A new drug that is expected to be approved shortly from Biogen Idec Inc, BG-12, is expected to pose particularly strong competition.
The reshaping of Teva is being driven by its new chief executive, Jeremy Levin, a former senior executive at Bristol-Myers Squibb, who says he wants to make the company more transparent and responsive to shareholders. "Teva will look like a very different company going forward," he told analysts on a conference call.
As part of its reorganization, Teva plans to cut $1.5 billion to $2 billion in costs, with most of those savings occurring over the next three years and the rest over the following two years. The savings will come from every aspect of its business, Teva said, including the way it procures raw materials, the amount of real estate it owns, and how it invests in information technology.
"Most had anticipated below-consensus guidance, and while clearly the magnitude will surprise, we actually think the lowered bar will be welcome when the dust settles today relative to the stock reaction," said Randall Stanicky, an analyst at Canaccord Genuity.
Teva expects revenue from its generic drugs of $10.3 billion to $10.7 billion in 2013, and sales of branded medications of $7.6 billion to $8 billion.
The company expects sales of Copaxone to range between $3.7 billion and $3.9 billion. The company said it could not predict with accuracy the extent of the drug's potential sales decline until the trajectory of BG-12's launch becomes clearer. It said it continues to believe Copaxone will remain a strong player in the market. That drug currently accounts for about 20 percent of Teva's total sales.
The company said sales of branded products would be hurt somewhat by the launch of multiple generic versions of Provigil, a sleep disorder drug the company acquired with its $6.5 billion purchase of Cephalon. On the other hand, Teva expects growth in other branded products, including women's health.
Teva has grown historically through acquisitions, some substantial such as the Cephalon deal. But Levin said that Teva now plans to make targeted acquisitions in its core areas of expertise, such as central nervous system disorders.
Levin said Teva is determined to be more transparent with Wall Street and says there are "different levers" the company can pull to return value to shareholders, including potentially increasing stock buybacks and allocating cash more efficiently.
"Our intent is to divest businesses that don't have the margins we want and at the same time build businesses with margins that we want to have," he said. That means continuing to invest in treatments for multiple sclerosis and other central nervous system disorders.