Teva | Schultz’s vision for nature: modest growth, strong cash flow and possibly dividends

Already a few years ago the pharmaceutical company set up nature Three long-term financial targets relating to operating profitability of 28%, cash ratio to profits of over 80% and debt to EBITDA ratio of less than 3%.

These goals Teva is expected to meet according to its plan at the end of 2023, and at the annual health conference of the investment bank JP Morgan, the company’s CEO, Carr Schultz, was asked where Teva is aiming to achieve these goals by the end of that year.

Schultz has promised that Teva will present new financial targets, and strategically continue to focus on improving profitability, as well as revenue growth (an issue that has been weak in recent years). “There will be no phenomenal growth, but there will be organic growth at a single-digit rate. There will be a continued improvement in profitability and a strong cash flow,” he said.

Schultz added that “we can also discuss the issue – perhaps return to shareholders (meaning dividends, NIS) or make small purchases. But the key is to continue reducing debt. “Recall that Teva stopped distributing dividends to its shareholders at the end of 2017, with the launch of Schultz’s massive efficiency plan. Teva is currently traded on the New York and Tel Aviv stock exchanges worth $ 10 billion, after losing 34% of its value. Since Schultz took office (November 2017), it has fallen by 86% from its peak in2015.

Apart from the issue of the possibility of returning to dividends and acquisitions after achieving long-term financial goals – what else could have been learned from Schultz’s remarks?

Legal proceedings: “Extensive basis for appeal”

Schultz opened his presentation at the conference on the subject of legal proceedings in the field of opioids – a topic that has plagued Teva for several years. Teva is one of a long line of defendants in U.S. states for marketing addictive opioid painkillers. Recently, Teva suffered a loss in a New York lawsuit it is appealing.

“This is the issue that everyone is interested in,” Schultz said, noting that Teva is a party to the proceedings along with other manufacturers and distributors. He mentioned compromises that Teva had signed in some U.S. states, as well as the outline for a general compromise that had been agreed more than two years ago but had not been finally signed since.

He said, “We are still in discussions and trying to reach an acceptable compromise that will suit all stakeholders.” At the same time hinted that some might object to the fact that a small portion of that compromise was in cash ($ 250 million), and most in the drugs Teva would deliver (at a wholesale value of $ 23 billion), because the cash component determines the fees of the consultants involved. However Schultz also added that he does not believe any of the parties will benefit from lengthy legal proceedings, so everyone has an interest in reaching a compromise.

As for the lawsuit in New York, Schultz said: “A lot of interesting things happened in this lawsuit, including the sales volumes of Teva mentioned there were inaccurate.” The decision was made by the jury and the judge is due to hear Teva next month. When asked what the schedules were, Schultz replied that the judge would decide whether to set a new trial – something that would take at least a year – or give a verdict, and then Teva could appeal, “and we have an extensive basis for appeal,” he said. In any case, it seems that these procedures will accompany Teva for a long time to come.

Business optimization: About 100 sites have been closed

In the context of optimizing Teva Business, Schultz mentioned that the company has closed or sold about 100 sites so far (in an almost equal distribution between production sites, R&D and offices). Another 10 production sites are expected to close in the coming years.

“If you remember, we set goals for 2023 that include operating profitability of 28%, and we’re on the right track to get there,” Schultz said. Recall that at a low, operating profitability reached 24.5% in 2019, while in the third quarter of 2021 profitability was 26.8% (on a non-GAAP basis).

Debt: Reduced to about $ 22 billion

On the debt, which in 2017 was $ 34 billion and reduced to $ 21.7 billion in the third quarter of 2021, Schultz said Teva would continue to reduce it. “We have recently made a very successful $ 5 billion debt cycle move. We have issued bonds linked to existing targets, which include reducing greenhouse gas emissions and improving drug accessibility in low- to medium-income countries. We are very proud of that. “He added that as the debt goes down, so does the interest rate that Teva pays, which reduces the company’s risk premium.

Growth engines: Ostado, Ajobi and Biosimiler

Teva, it will be recalled, is not expected to show growth in the 2021 reports either – according to forecasts, revenues will reach $ 16-16.4 billion, the fourth consecutive year of declining revenues. Schultz referred to Teva’s growth engines including the original drugs Osteo and Ajobi as well as the biosimilar drugs (generic drugs based on biological drugs). In the context of Ajobi for the treatment of migraine, Schultz said that the company continues to strive for a third of the market share in Europe and the US in the coming years, and in the context of the biosimilar estimated that Teva is in a good position for market growth.

Schultz also mentioned another original product (whose temporary name is TV-46000), intended for patients with schizophrenia, which is awaiting U.S. marketing approval in the first half of this year. “There is a great need for better treatment for schizophrenia,” Schultz noted.

By Editor

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