Teva's Midlife Crisis: Plummeting Sales, Revised Guidance, and Strategic Overhaul Amid Generic Drug Turmoil

Teva, the Israeli generic drug giant, reported revenue of $3.66 billion in the first quarter, an 8% decrease from $3.98 billion in the same period last year. After the earnings call, Teva lowered its full-year revenue forecast.

Generic drugs generated $899 million in revenue, a 15% decrease compared to the same period last year. Teva attributed the decline to increased competition but noted that its generic version of lenalidomide (Revlimid), used for refractory multiple myeloma, has begun contributing to sales.

Overall, the company's revenue in the first quarter was about $80 million less than the consulting firm's analysis and forecast.

Generic Drug Giant's Blockbuster Original Research Under Siege

Teva reported $168 million in global sales of its multiple sclerosis (MS) treatment Copaxone (glatiramer acetate), with revenues plunging on both sides of the Atlantic due to rival generic versions.

Glatiramer is a synthetic peptide compound composed of four amino acids: glutamic acid, alanine, tyrosine, and lysine. It is believed to work by altering the immune processes involved in the pathogenesis of MS. Clinical trials have also confirmed that glatiramer can reduce the frequency of relapses in patients with relapsing MS. Relapsing MS is the most common disease course type of multiple sclerosis, with approximately 85% of MS patients diagnosed with relapsing MS.

"Nature is fair in its cycles," Teva, holding the significant original drug glatiramer acetate, was then besieged by generic drugs. In 2018, the U.S. FDA approved the launch of a multiple sclerosis treatment drug developed by Novartis and Momenta. The drug's trade name is Glatopa, a generic version of 40mg dose glatiramer acetate. A year earlier, another generic drug giant, Mylan, had already received approval for a similar product. The successive launches of generic products gradually eroded the market share of glatiramer acetate, causing its sales to shrink rapidly.

As the first-quarter earnings were announced, Teva lowered its full-year revenue forecast from the previous $15.6 billion to $16.2 billion to $15.4 billion to $16 billion. The company reduced its outlook for glatiramer acetate by $100 million and now expects the drug to generate $750 million. In 2017, glatiramer acetate brought in over $3.8 billion in revenue for Teva.

As for Teva's tardive dyskinesia treatment drug Austedo, the drug achieved sales of $154 million in North America in the first three months of this year. Teva expects the drug’s sales to reach $1 billion this year, but analysts at Jefferies consider that forecast to be "quite aggressive."

Caught in the opioid litigation quagmire

Meanwhile, Teva Pharmaceutical Industries is still embroiled in the massive opioid litigation.

Teva Faces Legal Battles in Multiple U.S. States Over Allegations of Exacerbating the Opioid Crisis Through Deceptive Marketing PracticesTeva has been facing legal action across multiple states in the U.S., with state governments alleging that the company worsened the opioid crisis by using deceptive marketing to entice millions of Americans into opioid use. The surge in the number of opioid victims has significantly increased the burden on cities in terms of healthcare, law enforcement, and other areas, leading to a severe public health and safety crisis.

In fact, opioid addiction has become a serious social issue that has been increasingly prominent in the United States in recent years. The White House once vowed to manage the problem of opioid abuse effectively; however, the latest data disclosed by American media show that the U.S. opioid abuse crisis is worsening. Between 2020 and 2029, it is projected that 1.2 million Americans will die from opioid overdoses.

On March 21, Teva reached a $100 million settlement agreement with Rhode Island, USA, to resolve claims related to opioid addiction. Over the next 13 years, Teva will pay $21 million in cash to Rhode Island and provide generic drugs Narcan and Suboxone worth $78.5 million over the next 10 years. Both drugs are used for treating opioid addiction.

However, this is not the beginning, nor is it the end. As early as 2018, Teva reached an agreement to pay $15 million to Louisiana and donated $3 million worth of generic drugs Narcan and Suboxone; In 2019, Teva reached a similar agreement with Ohio, agreeing to pay $20 million in cash and donate $25 million worth of Suboxone; Recently, Teva also reached an agreement with Texas, agreeing to pay $150 million in cash over 15 years and donate $75 million worth of generic drug Narcan.

Despite Teva mentioning in a statement that the agreement with the government does not constitute an admission of all liabilities but is aimed at helping victims affected by the opioid crisis, getting entangled in the opioid vortex has become an unavoidable predicament. According to Reuters, Teva is expected to spend approximately $2.6 billion in cash and overdose medications to resolve the complex web of lawsuits.

The Competition for Generic Drugs is Becoming Increasingly Fierce Worldwide

Competition from generic drugs, exchange rate fluctuations, and litigation challenges have already shown Teva's downturn several years ago, directly reflected in its roller-coaster stock price decline.

Figure 1: Historical Stock Performance of Teva

In recent years, due to policies such as the consistency evaluation of generic drugs and centralized bulk procurement in China, the chaos of excessively high drug prices and disordered drug circulation has significantly improved, with the most direct manifestation being a noticeable decline in drug prices. This has put significant pressure on many pharmaceutical companies in China, but in fact, the decline in generic drug prices is not unique to China—it is a widespread global trend.

In recent years, countries around the world, especially the U.S. FDA, have lowered the approval threshold for generic drugs, leading to an acceleration in the development progress and a reduction in difficulty. By optimizing the generic drug review process and expediting approvals for market entry, the FDA aims to break the absolute monopoly of blockbuster original drugs on the market. With policy inertia spreading in this "zero-sum game" market, increasing competition among more generic drugs has ultimately resulted in very low prices for generics in the U.S. — unless during a period of market exclusivity, it is extremely rare for ordinary generics to achieve sales exceeding $100 million.

Besides the main business crisis, Teva's rapid expansion in previous years has also brought cash flow pressure to the company.

In 2015, Teva reached an acquisition agreement with Allergan to purchase its generics division, Actavis Generics, for $40.5 billion. The deal was completed in 2016. This acquisition brought Teva $30 billion in debt, forcing the company to sell off a number of divisions, including its women and children’s health division, to repay the debt, all of which had a significant impact on the company’s cash flow.

To address its huge debt and tightening cash flow, as well as increasingly fierce competition in the generic drug market, Teva has been implementing a strategy of streamlining operations this year. On one hand, it involves selecting business segments to focus on, decisively abandoning those with weaker profitability and commercialization capabilities; on the other hand, it focuses on cost control by reducing staff to cut expenses. In 2017, Teva announced it would lay off 14,000 employees, accounting for about 25% of its workforce at the time.

Despite Teva's efforts to cut debt, executives said the burden still amounts to $20.7 billion.

Summary

Despite Teva's recent entanglement in debt crises, litigation crises, and increasingly fierce generic drug competition, the saying "a瘦dead camel is bigger than a horse" holds true—its position remains unshakable in the short term. Teva has over a century of history since its establishment, experiencing more transformations and changes compared to most pharmaceutical companies in China. Given its focus on generics, its strategic plans and historical evolution are even more worthy of reference for pharmaceutical companies in China.