Teva Surges After Push Into Branded Drugs Drives Sales Beat

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2:08Learn more at thehartford.com slash risk mitigation. Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. Let's turn our attention to health care and specifically to Teva Pharmaceuticals. Shares on a tear right now after reporting earnings up about 21.5 % on the day, hitting their highest level since 2018. And who better to discuss these results than with Teva Pharmaceuticals president and CEO Richard Francis joining us right now.

2:51Richard, great to speak to you again. So it seems like Wall Street particularly psyched about total revenue last quarter coming in at$4.48 billion. 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? Well, hi, Katie, and thanks for having me on. Yeah, we had a good quarter three. And as you say, 4.5 billion up 3%. But I think the detail is where I think the excitement is. Our innovative portfolio, which is something that's relatively new to Teva. When I came on board three years ago, it was a generics company.

3:30And now we're transitioning to a world-class biopharma company. And to do that, we need to have an innovative branded portfolio. And that was up 33%. And it grew and it's now total over 800 million for Q3. And that was led by Estero up 38%, a treatment for tired of dyskinesia. And Yuseti up 24%, a treatment for schizophrenia and then Ajovi up 19%. So good growth across the portfolio. And I think that's what excited people now. They really see this transition of the company. And although our generics business was up 2%, what they're seeing now is this change in portfolio is changing our gross margin dynamics, which, of course, feeds down to the EBITDA and to the EPS.

4:11And so, you know, the opportunity to grow value for shareholders at Teva, I think, is becoming clearer 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 our negotiations with IRA and CMS regard to Estedo. And that was in line with our modeling that we set out in 2023, when we gave guidance of a$2.5 billion revenue for 27. And we now committed with confidence to the fact that we can hit that$2.5 billion and we can hit peak sales of over$3 billion. So I think that removed an uncertainty from the stock, as well as with all those tailwinds that I've just spoke about.

4:48I think that's probably why we are where we are today. Right. Yeah, I'm glad you brought up Esteto. 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 a generics companies into what you're describing, of course, when it comes to biosimilars and biopharmaceuticals and branded medications there. I take a look at some of the details of your report. I know that sales of generics, which is still your core business, missed estimates there.

5:18I 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? Well, you know, we're doing both. But what I think people, we try to make them think about a generic 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 it on a two-year CAGR. 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 patent and we can't predict exactly equally when that's going to happen.

5:56And so we get, you know, some launches in one year and less launches in the other. And so because of that, we say, look at over a two-year CAGR. 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 2 % CAGR going forward because it's a very big business. But that is a good return on that business being such a size it is. But as our innovative business continues to grow at the speed it is, as a company, we are changing our profitability. we're changing our sustainability and the ability to keep these results going forward.

6:32So I think that transition, our generics business is helping fuel it because obviously we use the revenue and the cash that those throws off to fuel our pipeline. Now, our pipeline also created quite a bit of excitement on our Q3 earnings because we have a late stage innovative pipeline. So as much as our portfolio has grown at 33 % currently that's 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 of the year after that. And then we'll be adding a treatment for a rare disease drug, SMA, the year after that. And then the year after that, we'll be adding a treatment for usine and CD.

7:04So 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 2 % over those multiple year period will be a good way of modeling the company. Well, Richard, I did want to ask about one of those generic drugs. You launched the first U.S. generic GLP-1 indicated for weight loss. How much weight are you guys putting behind that effort? Because it is a very competitive space here, GLP-1s. 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-1s, firstly, we did launch Victoza, and we have launched Saxenda this year.

7:47So we're in that first genericized market. But obviously, people are talking about the big GLP ones, which will be coming off patent 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. We let other people do that. So as much as we see it as a significant opportunity, we also understood the uncertainty around that area, around pricing, 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 generic products coming to the market.

8:23And we have over 10 biosimilars coming to the market in the short, medium term. So we have a lot of other things that are going to drive our generic growth outside of the GLP-1s, although we will participate in that market. Yeah, I appreciate the context there when it comes to GLP-1s, 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. You were in talks with an unnamed buyer. Originally, I know that you had said that this would go through by the end of the year.

8:57So 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? So yeah, there's a few questions within that question. So let me unpick them and hopefully I can do it justice. But 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 has been discussed the last six to 12 months.

9:32So we see it as real value. That said, as we divest this business, it's not just about investing it and obviously getting an amount of money for that. This is a partner we're going to have to work with for the next 10, 15 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 Teva over the short, medium and long term. And so because of that, you know, 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 that we don't think we've got there right now.

10:04We do think the market's changed. We do think 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 the deal that's right for Teva and right for our shareholders. 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 biopharma company, it's not something that will be strategically aligned to that. All right, Richard, great to get an update with you. I know it's a busy day. That is Richard Francis.

10:33He is the CEO of Teva Pharmaceuticals. Pharmaceuticals, a company that is higher by more than 20 % after reporting earnings and third quarter revenue that beat expectations.

10:47What if data didn't sit still? What if intelligence moved with us? Not buried in reports, but activated in real time. Where lives are being shaped. Where decisions are being made. It all starts with a question. Where is the potential?

11:16The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions. slash repetitive tasks and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM. Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions, buying the dip, manually sweeping idle cash, putting on a hedge.

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