Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) CEO Richard Francis believes that the Israeli drug-maker is entering an era of growth, is bullish about its ability to achieve good value for the sale of its active pharmaceutical ingredients division and sees a change in market sentiment towards its stock. Frances was speaking today at a press conference at the company's headquarters in Tel Aviv. Francis, who became Teva CEO in January 2023, believes that the company's market cap will rise with the market appreciating Teva's performance and the value it is creating but he concedes it will be a journey of many years.
Teva is traded on Wall Street and Tel Aviv at a share price of $13.11 and market cap of $14.857 billion, more than double (111%) its lowest point of $6.16 per share in the summer of 2019. The share price has risen over 25% since the start of 2024.
But it is still 80% below its peak share price in 2015, shortly after announcing the acquisition of Actavis for $40 billion. The acquisition was perceived as positive and expectations were high but within a short time the dynamics in the US generics market changed and Teva's market cap was seen as too high. The deal burdened Teva, then managed by CEO Erez Vigodman, with heavy debt which tore the company apart and its share price was seen as too high amid concerns that it would not be able to service its debt. Kare Schultz (Francis's predecessor) was brought in as CEO and he implemented an aggressive streamlining plan that included closing plants and thousands of layoffs.
In the distant past Teva was considered the 'share of the nation' and was held in almost every Israeli investment portfolio but it had lost that status even before it became mired in difficulties and even more so since then. The positive momentum in the share price recently has restored Teva as the most valuable company on the TASE. But can it regain its status as the 'share of the nation' and climb back to its previous peaks?
Asked this Francis said, "There is a lot of responsibility when everyone in the country holds the share and we take that responsibility very seriously. Regarding the price of the share, we believe that we will present good performance and the company can get an improved value. Our pipeline (of products in development) is currently not valued enough."
He added that recently many analysts have raised their recommendations for the share. "The sentiment has changed and that is an important part. I believe that what we have achieved in doing provides people with clarity on how the company can grow and they will start to see us in a different way, which in my estimation can bring a different value. But this is a journey of many years."
According to data gathered by Teva, for the first time in recent years, most analysts covering the company's share have a positive recommendation - 58% compared with just 6% two years ago and 14% one year ago. The average price target for the share is $14.88, a 14.3% premium on the current price. In recent weeks two investment banks have raised their recommendations - Jefferies and Piper Sandler - the latter was skeptical about Teva's share more than a decade ago, before the company's peak.
Focusing on less products with more benefits
In the past Francis has stressed that Teva is a global pharmaceutical company with a generics business and a branded business. He said, "When I came to the company I was pleasantly surprised by the quality of the science. I was pleasantly surprised to discover the quality of the pipeline." He added that Teva is increasing its scientific collaborations in Israel. On the generics business Francis said that Teva is today focusing on less products, and especially those that are more complicated and bring more benefits. He said that the generics market in North America has begun stabilizing.
Last May, Francis presented Teva's strategic plan meant to consolidate growth in the coming years. At the end of 2023, Teva returned to growth after five years of erosion of its revenue. "This is a long-term strategy," Francis said in May. "This strategy is like a marriage - you have to think about it a lot and then stick to it."
He said, "In my first week in the job I traveled to the J.P. Morgan Conference and the questions were when can Teva return to growth, what is happening with the debt and the legal proceedings - most were negative. A year later I returned to this conference and the questions were different - about growth and not about stabilization. That stems from what we have done."
Teva recently announced about spinning off its TAPI - Teva Active Pharmaceutical Ingredients activity and putting it up for sale. In the past it has been published that it can sell TAPI for $2 billion. Francis said, "TAP is an excellent business but we are focusing on our priorities according to the strategy and this can be an excellent deal for both sides. In the past we thought that there was an advantage for us in an internal raw materials business but we buy raw materials from other sources. It's a huge market and TAPI can expand in it and not focus only on Teva.
"It has all the required advantages," he added. "I have no doubt that many businesses will be interested in buying it because it is a high quality business and people recognize this. Businesses like this don't often come on the market. So I do believe this will affect a significant amount of interest. That will lead us to get a fair valuation."
"We can do M&As but we don't need to"
To a question about mistakes made by Teva in the past, Francis answered diplomatically, "There have been many chapters in the history of the company, the last one was a chapter of stabilization and the management did an excellent job in it, which allows us to move into the growth chapter. For me, the recent past does not define Teva - it is a great company with a rich history. In the past I worked for another company in the field (Sandoz) and Teva was our toughest rival."
Another question was about acquisitions. In recent years, no significant acquisitions were made due to streamlining, but Teva is now talking about it again. "We have the ability to do mergers and acquisitions but we don't have to," Francis said. "We are constantly looking for opportunities. You have to kiss a lot of frogs to find the prince who is the right asset, because everyone is looking for him."
Part of the growth in Teva's results in 2023 was due to a collaboration deal signed with Sanofi for the Anti-Tl1A product developed by Teva to treat intestinal infections. Following the agreement, Teva received $500 million from Sanofi. Francis said, "This is a very important product for Teva and it is important that we reach patients as quickly as possible. Sanofi will be able to help us both develop the product quickly and develop more medical indications."
Israeli directness? People with passion
Francis also spoke about the impact of the war on Teva and talked, among other things, about an initiative launched after October 7 - the "Mental Caregivers" fund, in which Teva and partners promote trauma care through the training of professional teams: "It was clear to us that there is trauma in Israel on a very large scale, Two million Israelis may develop post-trauma. We looked at what the needs are and we established 'Mental Caregivers,'" he says. "We are proud of what we did, and sad that we had to do it." When asked if Teva encountered a boycott because it is an Israeli company, he replied in the negative.
Francis was also asked what he had found in Israel that he did not know about before. He said, "I was told that it might be challenging because in Israel the people are very direct, but I see it as a passion of the people, and I like that aspect."
It turns out that Francis is already starting to benefit from the increase in the stock, when after the press conference Teva reported to the stock exchange that the CEO had sold some of the Teva shares he holds (in a blind sale and for tax purposes). These are restricted shares that have recently matured, totaling $980,000.
The blocked shares allocated to him in February 2023 mature in three tranches until 2026. The current sale is part of the tranche that has matured.
Published by Globes, Israel business news - en.globes.co.il - on February 20, 2024.
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