Cutting costs and Copaxone prices pays off for Teva, sending shares skyward

Teva production
The delayed FDA approval of Teva's migraine drug, fremanezumab, is compounding concerns that the company does not have enough innovative drugs in its pipeline to make up for lost sales of Copaxone. (Teva)

You could say Teva investors are pleasantly surprised. The embattled drugmaker's shares soared 8% in premarket trading Thursday after it unexpectedly raised guidance for the year—a sign that the restructuring and cost-cutting plans laid out in November were working.

And then there's Copaxone, the blockbuster multiple sclerosis drug facing new competition—and about to come up against long-acting generics. Teva surprised the Street there by managing to hold onto market share.

So, though Teva reported a 10% revenue decline to $5.1 billion, it handily beat analyst estimates of $4.8 billion. Earnings per share came in at 94 cents, far ahead of the consensus 67 cents. It bumped up revenue guidance to $18.5 billion and $19 billion, versus its previous $18.3 billion to $18.8 billion. And it bumped up EPS guidance to $2.40 to 2.65, from $2.25 to 2.50.

The company has embarked on an ambitious plan to cut 14,000 jobs and shutter manufacturing plants, targeting $3 billion in cost savings by the end of next year. Teva is on track to meet that goal, said president and CEO Kåre Schultz.

RELATED: Teva's stunning list of cuts targets 14K jobs, $3B in costs and plants around the globe

Generic competition to Copaxone in the U.S. pushed North American sales of that product down 40% to $476 million, but worldwide sales came in at $645 million, about $50 million ahead of what analysts had expected. Competitors haven’t yet stolen volume share from Teva, Schultz said during a conference call with analysts Thursday. And he's optimistic Teva can hang onto its share despite looming competition from Novartis’s Sandoz unit, which won FDA approval for its copycat of the newest Copaxone, a longer-acting 40mg version, in February. 

“We have roughly 85% of the volume in 40mg and we maintain a very high level of access,” he said. But the tradeoff has been on price: The competition forced Teva to offer payer rebates, he explained. “My thinking is we will of course see some further pressure on pricing,” with Sandoz entering the market, Shultz said, “and probably also marginal pressure on the volume for the rest of the year.”

For Teva to fully succeed with its turnaround, it will have to continue to innovate on the branded side of the business, so it was no surprise that much of the earnings call focused on the delayed FDA approval of its migraine drug, fremanezumab. Despite the positive news that Teva now expects its manufacturing partner, Celltrion, to resolve the FDA’s concerns in time for an approval and launch by the end of this year, analysts on the call raised questions about how Teva will compete with the likes of Amgen, Eli Lilly and Allergan—all of which are working on similar products.

Schultz acknowledged during the call that fremanezumab could very well be one of three in-class products hitting the market this year, all of which have similar efficacy. But Teva anticipates being able to offer its product as both a monthly and quarterly injection. “We proved in our clinical trials that [the quarterly dose] is exactly the same efficacy as if you take it once a month. So we think everybody who wants a more convenient way of treating their migraine and achieve the same clinical outcome” will choose fremanezumab, he said.

RELATED: Teva overhauls its board again, and almost all its old-timers are gone

Meanwhile, Teva continues its ongoing efforts to optimize its generics portfolio. Schultz said during the call that Teva is working with its key customers to adjust pricing and discontinue some low-margin products, while at the same time focusing on new launches that have the potential to boost profitability. Sales in the U.S. generics business fell 23% year-over-year to $1.1 billion during the quarter, driving the company’s worldwide generics sales down 6.5% to $2.6 billion.

Teva had previously forecast $4 billion in U.S. generics sales for the full year, and Schultz said during the earnings call that the company is on track to meet that goal. “We think we have a very strong starting point for stabilizing and expanding profitability in our U.S. generics business,” he said.

When one analyst expressed worries that Teva might struggle to get out of certain contracts with its generics buyers, Schultz responded that the company has no choice. Buyer consolidation forced suppliers like Teva to accept lower and lower prices—a cycle that’s not sustainable, he said. Any company that accepts that “race to the bottom on price” will destroy profitability, he said. “The only way to get out of that negative spiral is, of course, to stop it.”

Suggested Articles

The FDA has granted Amarin's Vascepa a possible blockbuster label expansion for CV risk reduction in patients with or without CV disease.

In a high-stakes patent lawsuit between CAR-T companies Bristol-Myers Squibb and Gilead Sciences, BMS has come up with a victory. 

It’s been a year of ups and downs for Pfizer’s Xeljanz. But the company is hoping to close on a high note, with help from a new extended-release pill.