Teva gets uplift from job cuts but needs growth
Teva Pharmaceutical Industries’ transition to lumbering big pharma now seems complete. Yesterday’s announcement of 5,000 job cuts, 10% of its workforce, allowing it to forecast an additional $500m in annual savings by the end of 2017, was a spark investors were awaiting as the generics giant faces a looming patent cliff of its own in its branded drug business.
What the Israel-based group needs now is to restore confidence that it can deliver topline growth, as well as goose earnings through cost reductions. It began a charm offensive earlier this week by providing investors an outlook on its respiratory pipeline; however, word that it does not expect to deliver an Advair generic until 2018 is not necessarily assurance about R&D productivity.
Speeding up the savings
Teva had previously said it would be able to achieve cost savings in the range of $1.5-2bn, but gave a more explicit $2bn estimate with the announcement of the job cuts. The company said it would achieve $1bn by the end of 2014 and 70% by the end of 2015; the bulk of the savings would come from a reduction in cost of goods.
The group did not change its guidance for 2013, estimating revenue in the middle of previously stated $19.5-20bn and earnings per share of $4.85-5.15 – both representing declines from 2012 numbers.
Cost control was perhaps not a task that Jeremy Levin, a canny acquisitions expert, expected to need to do when he took the reins at Teva last year; however, stagnating sales and unfavourable market conditions certainly thrust the job upon him. Investors took news of the job cuts as positive, with Teva’s US-listed shares rising 4% to $40.59.
Some of the initial savings will be diverted to the development pipeline, focusing on high-potential speciality and complex generics. With so much of its pipeline at risk in coming years – blockbuster Provigil, an acquisition brought on board with Cephalon, went last year, and the $3bn-seller Copaxone will go in 2014 – how Teva generates growth is an intense concern to investors and analysts who have been disappointed by its generics performance (Teva looks for plan B as investors desert, October 4, 2013).
Somewhat belatedly – and perhaps pushed by recent sellside downgrades including a rare “sell” recommendation from Goldman Sachs – Teva is starting to put a greater emphasis on its development pipeline, with a series of R&D webinars planned.
The first one this week was on respiratory drug developments. The big news from the session was Teva’s belief that neither it nor its competitors will be able to launch a pharmacist-substitutable Advair generic until 2018; Mylan believes it can produce one in 2016 after the FDA’s release of guidance on inhaled copycats (GSK moat breached as FDA issues generic Advair guidance, September 10, 2013).
Analysts from J P Morgan expressed disappointment that Teva would be so far behind, although they said the bar is much higher for a generic inhaled drug than for a normal copycat, so there still will be a substantial market even if Teva trails Mylan.
Teva research chiefs took great pains to emphasise that the group could reach the market earlier with generic fluticasone/salmeterol using its own Spiromax inhaler. A phase III trial will begin in early 2014 and, if successful, a filing under the 505(b)(2) pathway using supporting data from GlaxoSmithKline could come in 2015.
This is in keeping with the “new therapeutic entity”, or NTE, strategy Teva will be pursuing as it attempts to pump products likely to produce modest sales but requiring significantly less development investment. The next pipeline webinar will be on other NTEs in the pipeline.
In any case, Teva believes that its device is superior to Glaxo's Diskus, based on phase II data showing that patients can achieve similar improvements in lung function with less systemic exposure to salmeterol, the long-acting beta 2 adrenoreceptor agonist component that has raised so many safety worries (New LABA warnings unlikely to make big players pause for breath, June 3, 2010)
In accelerating its cost-savings programmes, Teva has begun to make some moves to placate investors dissatisfied with the speed of its turnaround. The next step will be achieving some clinical goals. Teva has set out some low-risk and low-return objectives, so it still needs to demonstrate that it can sustain momentum if these new products succeed.