Popular Stories

Teva CEO Sees Risks in Relying on China for Drug Ingredients

Kåre Schultz, Tesla’s CEO, testified to a House committee about the cost of prescription drugs.

Alex Edelman / POOL/AFP via Getty Images

In the early days of the Covid-19 outbreak, one fear was that the disease would stop the flow of key pharmaceutical components out of China, hobbling the world’s drug supply.

Those components, known as active pharmaceutical ingredients, are the essential precursors to the world’s medicines. Though their sourcing is hard to track, the majority are thought to come from Chinese factories.

And while disruptions at those facilities never caused the widespread drug shortages many feared at the start of the pandemic, Teva Pharmaceutical Industries (ticker: TEVA) CEO Kåre Schultz says that risk posed by the concentration of API manufacturing in China remains.

“I am not a political analyst, but I think it’s fair to say that the conflict level between China and the U.S. has gone up over the last couple of years,” Schultz told Barron’s on Wednesday. “If you really depend a lot on Chinese API, that could pose a risk to your global supply chain.”

Teva doesn’t manufacture API in China; its facilities are in Europe, Israel, the U.S., and India. “I’m happy that we do not do that, and I think we have a very resilient and safe supply chain,” he said.

But he said that he expects the experience of the pandemic to lead to a renewed focus on the issue. “I think everybody will be looking at, if you have really big concentrations in one particular geography, is that a good and safe way to do it?” he said.

Schultz spoke on the morning that Teva released a fourth-quarter financial report that beat analysts’ expectations for earnings per share, though the company’s American depository receipts fell 6.9% by the end of the day on Wednesday. The company reported fourth-quarter adjusted earnings of 68 cents per share, while analysts tracked by FactSet expected 64 cents. Quarterly sales of $4.5 billion were roughly in line with the FactSet consensus estimate of $4.4 billion.

Sales of the company’s new migraine drug Ajovy were $36 million for the quarter, a 42% jump from the same quarter last year, while sales of another new drug, Austedo, were up 36% year over year.

“We have the feeling that we’ve stabilized the business, which is good,” Schultz said. “We are sort of more optimistic about the future than we’ve been before.”

Yet the past still lingers for Teva. Litigation brought by U.S. state and local governments seeking to hold the company, and others, responsible for the opioid crisis refuses to go away. Teva reached a framework agreement with state attorneys general in October 2019 to pay $250 million in cash and $23 billion worth of drugs used to treat addiction, but that deal has yet to be completed.

“We have a very positive dialogue with the state [attorneys general],” Schultz says. “We need to push it over the finishing line, get everyone to sign on the dotted line.”

He said that the postponement of court trials due to the pandemic had removed some of the pressure to complete the deal. “ I think it will be real beneficial for U.S. society…to get this framework implemented,” he said.

Meanwhile, Teva is aggressively paying down its debt. Schultz said that, when he took over as CEO three years ago, the company owed $34 billion. “Now we are down to around $23, $24 billion in debt,” he said. “We continue to pay down debt to the tune of $2 billion plus a year.”

He said that the company’s financing costs are now close to $1 billion a year, a number he hopes to reduce.

Shares of Teva have climbed 23.5% so far this year. The company’s ADR trades at just 4.5 times earnings expected over the next 12 months, below its 5-year average of 6 times. The stock has fallen 36% over the past three years, while the S&P 500 has climbed 49.3%.

In a note out Wednesday, Piper Sandler analyst David Amsellem wrote that it was “difficult to find…good reasons to get more constructive” on the stock. He has a Neutral rating on Teva, with a price target of $11. The stock closed at $11.92 on Wednesday.

J.P. Morgan analyst Chris Schott, who also rates the stock at Neutral, wrote Wednesday that the opioid litigation, and another group of lawsuits relating to allegations of price-fixed for generic drugs, remain a concern.

“With TEVA shares having rallied ~20% YTD, we see more attractive opportunities elsewhere in the space and remain on the sidelines,” Schott wrote.

Write to Josh Nathan-Kazis at [email protected]

View Article Origin Here

Related Articles

Back to top button