Teva Surges After Push Into Branded Drugs Drives Sales Beat

Teva Pharmaceuticals Inc. surged after sales of branded medications topped expectations, showing that its strategy to expand into that drug category is working. Total revenue last quarter of $4.48 billion beat consensus, driven by a 33% gain for a group of drugs that includes Austedo. Meanwhile, sales of generics — Teva’s core business — missed estimates. The Tel Aviv, Israel-based company has pushed into branded medications that have been drivers of the company’s growth in recent years. The generics business continues to make up the majority of Teva’s revenue.
Richard Francis, Teva's President and CEO, discusses his company's growth strategy and its move to renew the sale process for its active ingredients business after talks with an unnamed buyer fell through. Richard speaks with Emily Graffeo and Katie Greifeld on Bloomberg Businessweek Daily.

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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. You're listening to Bloomberg
Business Week with Carol Masser and Tim Steneveek on Bloomberg Radio.

Speaker 2 (00:14):
Let's turn our attention to healthcare, and specifically to Teva
Pharmaceuticals shares on a tear right now after reporting earnings
up about twenty one and a half percent on the day,
hitting their highest level since twenty eighteen. And who better
to discuss these results than with Teva Pharmaceuticals President and
CEO Richard Francis joining us right now. Richard, great to

(00:34):
speak to you again. So it seems like Wall Street
particularly psyched about total revenue last quarter coming in at
four point four eight billion dollars. That was a beat
when it comes to the consensus figure. Unpack that a
little bit for us. Where exactly is the growth coming
from and how sustainable is it?

Speaker 1 (00:53):
Well, Hi, Katie, thanks for having me on.

Speaker 3 (00:55):
Yeah, we had a good quarter three and as you say,
four point five billion, up three percent. But I think
the detail is where I think the excitement is our
innovative portfolio, which is something that's relatively new to Tever.
You know, when I came on board three years ago,
it was a generics company, and now we're transitioning to
a world class by a farmer company, and to do

(01:16):
that we need to have an innovative branded portfolio. And
that was up thirty three percent, and it grew and
it's now total over eight hundred million four q three
and that was led by Esteo up thirty eight percent,
a treatment for tide of dyskinesia, and you said he
up twenty four percent, a treatment for schizophrenia, and then
a Jovi up nineteen percent. So good growth across the portfolio,

(01:37):
and I think that's what excited people now they really
see this transition of the company. And although our generics
business was up two percent, what they're seeing now is
this change in portfolio is changing our gross margin dynamics,
which of course feeds down to the EBIDAR and to
the EPs, and so you know, the opportunity to grow
value for shelters at Tever, I think is becoming clearer

(01:59):
for investors. So I think that's one of the significant things.
The other thing that is worth noting is we did
announce that we have concluded on negotiations with IIRA and
CMS regard to Oesteto, and that was in line with
our modeling that we set out in twenty twenty three
when we gave guidance of a two and a half
billion revenue for twenty seven, and we now committed with

(02:20):
confidence to the fact that we can hit that two
and a half billion, and we can hit peak sales
of over three billion.

Speaker 1 (02:25):
So I think that.

Speaker 3 (02:26):
Removed an uncertainty from the stock as well as with
all those tailwinds that I just spoke about, I think
that's probably why we are where we are today.

Speaker 2 (02:33):
Right, Yeah, I'm glad you brought up Oesteto and certainly
when it comes to those price negotiations, I know that
was a hot topic on the call. You talk about
this transition that you've been navigating the company through when
you think of being primarily known as the generics companies
into what you're describing, of course, when it comes to biosimilars,
in biopharmaceuticals and branded medications. There. I take a look

(02:54):
at some of the details of your report, I know
that sales of Generics, which is still your core business,
missed as it's there. I mean, is that a ship
that you are focused on writing having those sales come
back for the generics business? Maybe in line with expectations.
Are you really focused more on the growth areas such
as branded medications?

Speaker 1 (03:15):
Well, you know, we're doing both.

Speaker 3 (03:18):
But what I'm what I think people we try to
make them think about our GENERICX business. It's a big business,
and we don't look at it on a quarterly basis
or even a yearly basis. We look at on a
two year keg. And the reason why we ask people
to look at it over two years is because some
years we have more launches than others, because obviously drugs
lose their pattern and we can't predict exactly equally when
that's going to happen, and so we get, you know,

(03:39):
some launches in one year and less launches in the other.
And so because of that, we say, look at over
a two year kega. If you look at how our
generics business has performed the last three years, it's actually
outperformed expectations considerably. What we've said going forward is that
our generics business will probably do a two percent CAGO
going forward because it's a very big business. But that

(03:59):
is a good return on that business being to such
a size it is. But as our innovative business continues
to grow at the speed it is as a company,
we're changing our profitability, we're changing our sustainability and the
ability to keep these results going forward. So I think
that transition our generics business is helping fuel it because
obviously we use the revenue and the cash that that throws.

Speaker 1 (04:21):
After fuel our pipeline.

Speaker 3 (04:23):
Now, our pipeline also created quite a bit of excitement
on our Q three earnings because we have a late
stage innovative pipeline. So as much as our portfolio has
grown at thirty three percent currently this on the market,
We're going to be adding a long acting treatment for
schizophrenia next year. We'll be adding a treatment for asthma
the year after that, and then we'll be adding a
treatment for a rare disease drug SMA the year after that,

(04:43):
and then the year after that we'll be adding a
treatment for US and CD. So we have a lot
coming through and I think that's the way to think
of the company in its totality, and so I think
when it comes to Generics, it has a job to do,
and I think growing at two percent over those multiple
year period will be a good way of more in
the company.

Speaker 4 (05:00):
Well, Richard, I did want to ask about one of
those generic drugs. You launched the first US generic GLP
one indicated for weight loss. How much weight are you
guys putting behind that effort because it is a very
competitive space here GLP ones.

Speaker 3 (05:18):
It is, indeed, and you know, we do see significant
opportunity at the same time when this sort of discussion
started three years ago with regard to the glp ones. Firstly,
we did launch Victa's and we have launched sex Ender
this year, so we.

Speaker 1 (05:29):
Were in that first generic sized market.

Speaker 3 (05:32):
But obviously people are talking about the big glp ones
which will be coming off pattern in the next few years.
And what we've decided to do is we've partnered with
people on those to make sure we can commercialize those products,
but we didn't invest in manufacturing capability to do that.

Speaker 1 (05:46):
We let other people do that.

Speaker 3 (05:48):
So as much as we see it as a significant opportunity,
we also understood the uncertainty around that area around price,
sing around volume and things like that. So it will
be something that helps drive our growth, but it won't
be a significant growth driver because we have a broad
range of products coming to the market and we have
over ten biosimilars.

Speaker 1 (06:07):
Coming to the market in the short medium term.

Speaker 3 (06:09):
So we have a lot of other things that are
going to drive our generic growth outside of the GLP ones,
although we will participate in that market.

Speaker 2 (06:17):
Yeah, I appreciate the context there when it comes to
GLP ones a hot topic of conversation. Something else I
did want to get your thoughts on, Richard, and this
is something you and I have spoken about before, is
the sale of your raw ingredients business. You announced today
that that sale process it actually fell through. Your in
talks with an unnamed buyer. Originally, I know that you
had said that this would go through by the end

(06:39):
of the year. So bring us up to speed there.
I mean, are you trying to re engage with any
other potential buyers? Is the active ingredients business still for
sale at this point?

Speaker 3 (06:51):
So yeah, there's a few questions within that question, so
Leo me unpicked them and hope that I can do
a justice. So, firstly, we are still wanting to divest
the business. We think it's a very good business. It's
the number two API business in the world, and it's
not based in China or India, so that creates a
real differentiation, particularly with the geopolitical situation that I think

(07:12):
has been discussed the last six to twelve.

Speaker 1 (07:14):
Months, so we see it as real value.

Speaker 3 (07:17):
That said, as we divest this business, it's not just
about divestment and obtually getting an amount of money for that.
This is a partner we're going to have to work
with for the next ten to fifteen years because it
will supply us with API, and so we need to
make sure that the service agreements we have with that
partner are the ones that benefit Tever over the short,
medium and long term. And so because of that, you know,

(07:37):
we want to make sure this deal is right. This
deal is right for us, this deal is right for
our shareholders, and we're in a position to say anything,
and we don't think we've got there right now. We
do think the market's changed. We do think, you know,
where we are as a company. We strengthen ourselves as
a company, so our need to do a sale in
a certain time period has diminished, and so we can
be more thoughtful about this and make sure we get

(07:59):
the deal that's right and right by our shoulders. But
it's still an attractive business, but strategically it's not one
we're going to keep long term because as we transform
into this by a farmer company, it's not something it
will be strategically aligned to that.

Speaker 2 (08:11):
All right, Richard, great to get an update with you.
I know it's a busy day, that is. Richard Francis.
He is the CEO of Teva pharmaceutical As a company
that is hired by more than twenty percent after reporting
earnings and third quarter revenue that beat expectations.