WEBVTT - Teva CEO on Staying Competitive in Generic Drug Market 0:00:00.160 --> 0:00:03.760 This is Bloomberg Business Week with Carol Masser and Jason 0:00:03.840 --> 0:00:08.000 Kelly on Bloomberg Radio. Of course, CEO of Teva Pharmaceutical 0:00:08.080 --> 0:00:13.200 truly a global executive in many ways, and this has 0:00:13.240 --> 0:00:16.680 been quite an assignment for you over the last couple 0:00:16.720 --> 0:00:19.560 of years, really coming to the end of a two 0:00:19.640 --> 0:00:25.800 year pretty intense restructuring. Uh, tell me what has been 0:00:25.800 --> 0:00:30.480 going on? Tell me what you essentially inherited two years ago. Yeah. So, 0:00:30.480 --> 0:00:33.600 so it has been a very big restructuring, probably one 0:00:33.600 --> 0:00:37.040 of the biggest in the pharmaceul industry. And the situation 0:00:37.080 --> 0:00:39.960 when I joined to it was really that the company 0:00:40.080 --> 0:00:43.200 had a very tough situation. It had done an acquisition 0:00:43.240 --> 0:00:46.560 here in the US of a comedy called Activists, which 0:00:46.640 --> 0:00:49.880 was another leading engineering company, and had taken on it 0:00:50.159 --> 0:00:53.239 to the tune of more than thirty four billion dollars. 0:00:53.880 --> 0:00:57.520 And then it had run into a price spiraled down 0:00:57.880 --> 0:01:00.640 on the whole U s Generic Managa, and at the 0:01:00.680 --> 0:01:05.680 same time it's big blockbuster, Kopacon, went off patent, so 0:01:05.680 --> 0:01:08.800 it was sort of phacing a loss of revenue to 0:01:08.840 --> 0:01:12.320 the tune of potentially five billion dollars, and its earnings 0:01:12.319 --> 0:01:16.040 were around five billions, which would wipe out the earnings basically, 0:01:16.600 --> 0:01:18.919 and then it's not good to have thirty four billion 0:01:18.959 --> 0:01:21.399 dollars of debt if you don't make any money. So 0:01:21.400 --> 0:01:23.959 so that was a situation when I started talking to 0:01:24.040 --> 0:01:27.440 the board about taking the position as CEO, and the 0:01:27.520 --> 0:01:30.680 simple math was that this could only be handled if 0:01:30.680 --> 0:01:33.800 we could reduce the cost dramatically, because we couldn't do 0:01:33.800 --> 0:01:36.319 anything about kopecs and going off pattern, and we couldn't 0:01:36.319 --> 0:01:39.480 really change the US generic situation short term. So we 0:01:39.520 --> 0:01:43.720 started the restructuring plan which has been now executed over 0:01:43.840 --> 0:01:47.120 the full year of eighteen and nineteen, where we reduced 0:01:47.120 --> 0:01:50.000 the number of manufacturing sites by more than twenty from 0:01:50.040 --> 0:01:54.400 eighty to below sixty, the workforce by more than thirteen thousand, 0:01:54.800 --> 0:01:57.440 and closed a lot of officers, laboratories and so on. 0:01:57.760 --> 0:02:00.720 All in all, we're using the total spend based by 0:02:00.760 --> 0:02:03.720 three billion US dollars, which basically leads you to that 0:02:04.400 --> 0:02:07.200 the revenue dropped five billion, their earnings went away. We 0:02:07.280 --> 0:02:09.360 saved three billions, so now we still make three billions, 0:02:09.840 --> 0:02:12.520 which is enough to really serve the debt, which we've 0:02:12.560 --> 0:02:15.040 also managed in the meantime to bring down from thirty 0:02:15.040 --> 0:02:18.080 four billion to now just below twenty five billions. So 0:02:18.160 --> 0:02:20.880 the math is relatively simple, and yet this is a 0:02:20.919 --> 0:02:25.120 complicated process. At what point did you feel like, along 0:02:25.160 --> 0:02:28.160 the way along this sort of two year journey, Okay, 0:02:28.360 --> 0:02:31.280 now we are sort of on the right track, was 0:02:31.320 --> 0:02:34.640 there a key decision, either a key closure or a 0:02:34.720 --> 0:02:38.120 key investment that you felt like was an inflection point. 0:02:38.720 --> 0:02:43.000 So I'm not saying this to be bragging, but I 0:02:43.040 --> 0:02:46.160 felt from the beginning that the analysis I did show 0:02:46.280 --> 0:02:49.160 that this could be done, and I immediately created my 0:02:49.200 --> 0:02:52.640 new management team when I started. Within ten days, I 0:02:52.639 --> 0:02:54.919 had a point of the new management team. And when 0:02:54.960 --> 0:02:57.120 I've done that and I knew that they were on board, 0:02:57.520 --> 0:02:59.840 I was pretty convinced that we would do it. Interesting, 0:03:00.360 --> 0:03:02.680 we had a little bit of political challenge in Israel 0:03:02.800 --> 0:03:06.040 with the Israeli government with Nitzan Yao, but we all 0:03:06.120 --> 0:03:09.760 came that and stood our ground, and we have basically 0:03:09.800 --> 0:03:13.240 executed the whole plan the way we re laid it 0:03:13.240 --> 0:03:15.959 out in the beginning. Actually now in the next phase, 0:03:16.360 --> 0:03:18.760 which links to our long term financial targets that we 0:03:18.760 --> 0:03:21.000 put out two years ago, because now we're getting to 0:03:21.000 --> 0:03:23.760 the phase where we can grow modestly but we can 0:03:23.760 --> 0:03:26.560 grow again on the top line and grow the bottom line, 0:03:26.560 --> 0:03:30.400 grow the earnings, and we can also start optimizing on 0:03:30.440 --> 0:03:35.520 a more granular level the whole global value chain. Right, 0:03:35.920 --> 0:03:41.720 And so as you think about the pipeline as it were, 0:03:41.840 --> 0:03:43.880 we've only got about a minute left in this segment, 0:03:44.080 --> 0:03:47.119 what are you singularly most excited about? So, what I'm 0:03:47.280 --> 0:03:51.120 excited about that we have created a very focused pipeline 0:03:51.200 --> 0:03:57.000 focused on biopharmaceuticals, both innovative biologics and biosimilars, and we 0:03:57.080 --> 0:04:00.760 have a I think of a great pipeline now twenty 0:04:00.760 --> 0:04:04.200 five projects, some of them very very innovolved, innovative, some 0:04:04.320 --> 0:04:06.960 with partners like we have a protocol in Facino map 0:04:07.040 --> 0:04:10.880 with Regeneral on new pay communication by Logic, which will 0:04:10.920 --> 0:04:14.120 be fantastic if it passes through the phase three. And 0:04:14.160 --> 0:04:17.240 we have launched some exciting new by Logics such as 0:04:17.240 --> 0:04:20.200 a Jovi which is a treatment for chronic migraine, which 0:04:20.200 --> 0:04:22.880 is fantastic as well. So I'm very excited both about 0:04:22.920 --> 0:04:25.840 the pipeline and about the fact that we've stabilized our 0:04:25.880 --> 0:04:29.520 generic business. All Right, you're listening to Bloomberg, but sweet 0:04:29.560 --> 0:04:32.120 chasing Kelly here in New York City alongside Core. Shelt 0:04:32.160 --> 0:04:36.239 He is the CEO of tele Phormaceutical based in Tel Aviv. 0:04:36.320 --> 0:04:39.159 Here in New York City today, So tell me about 0:04:39.520 --> 0:04:43.479 Core the outlook for as you look ahead. You're through 0:04:43.520 --> 0:04:45.760 this restructuring, So what does the rest of the year 0:04:45.760 --> 0:04:49.000 look like? So this year looks a lot more stable 0:04:49.040 --> 0:04:51.799 than we've seen the past. We have very big dynamics 0:04:51.839 --> 0:04:54.760 with loss of revenue on kapas and with big changes 0:04:54.800 --> 0:04:57.960 than the generic revenue. For this year, we expect a 0:04:58.040 --> 0:05:00.479 more calm development. Will still lose a little bit of 0:05:00.520 --> 0:05:04.080 revenue on on Capaccent, but then we will have growth 0:05:04.120 --> 0:05:09.440 in both our anti migrain drug a Jovi and the 0:05:09.640 --> 0:05:13.560 movement disordered drop called Ostato for hundredsons deceas ands out 0:05:13.600 --> 0:05:16.520 of this Kenesia. They will both be growing, so we'll 0:05:16.560 --> 0:05:19.559 get a nice marginal growth on revenue. The generic business 0:05:19.600 --> 0:05:23.160 worldwide we expect to be roughly stable, so we're expecting 0:05:23.200 --> 0:05:26.919 a modest growth in revenues and a modest growth also 0:05:27.000 --> 0:05:29.840 in earnings and and a good strong cash flow. So 0:05:29.920 --> 0:05:33.360 this might not seem terribly exciting, but it's a major 0:05:34.120 --> 0:05:36.760 change from the last three years where we've had you know, 0:05:36.880 --> 0:05:41.280 significant reduced revenues, significant reduced earnings. So we're sort of 0:05:41.680 --> 0:05:45.480 turning the corner slowly here. And I've been saying before 0:05:45.520 --> 0:05:47.960 the nineteen will be the trough here to the bottom 0:05:48.000 --> 0:05:49.920 of the trough. But now we sort of getting to 0:05:49.960 --> 0:05:54.320 where the trough starts. Slowly, slow, slow awards but not dramatic. Well, 0:05:54.360 --> 0:05:57.960 and in some ways I would imagine maybe a little 0:05:57.960 --> 0:05:59.640 bit boring is a little bit good at this point 0:05:59.640 --> 0:06:01.640 after a couple of years of drama, I can tell 0:06:01.680 --> 0:06:04.560 you boring is definitely good and hitting the guidance is 0:06:04.600 --> 0:06:08.320 definitely good. So so I like boring. Yeah, of course 0:06:08.400 --> 0:06:10.840 it's still with me. He is the CEO of Teva 0:06:10.839 --> 0:06:14.560 Pharmaceutical based in Tel Aviv, here in New York City today, 0:06:14.600 --> 0:06:17.479 thank you for hanging with me. Let's talk about the 0:06:17.480 --> 0:06:20.520 world of generics because here in the United States, I 0:06:20.520 --> 0:06:25.000 feel like, especially it's so important given the cost of drugs, 0:06:25.000 --> 0:06:29.200 the cost of healthcare. Help me understand the economics of it, 0:06:29.360 --> 0:06:32.599 both for you and and candidly for our listeners and 0:06:32.680 --> 0:06:35.599 viewers out there as they think about their own health. Yeah, 0:06:35.800 --> 0:06:37.359 let me try and give you a little bit of 0:06:37.360 --> 0:06:41.719 the big picture. The way drug discovery has been organized 0:06:41.800 --> 0:06:44.159 in you say, the Western world for a long time 0:06:44.200 --> 0:06:47.159 since the Second World War, is really that components have 0:06:47.240 --> 0:06:51.000 been incentivized to innovate and find new drugs. But because 0:06:51.040 --> 0:06:53.840 it's so risky, ninety nine out of a hundred projects 0:06:53.880 --> 0:06:56.920 that you initiate fail, there's been sort of an extra 0:06:56.960 --> 0:07:00.480 premium given, which is basically the patent legislation. Now, this 0:07:00.560 --> 0:07:03.840 is worked really well and has made that investors are 0:07:03.839 --> 0:07:06.920 willing to take the risk and invest in drug development, 0:07:07.120 --> 0:07:10.680 and we've seen a phenomenal development over the last fifty 0:07:10.760 --> 0:07:13.559 years of many new drugs coming to the market. Now, 0:07:13.640 --> 0:07:16.600 the way it then works as you get pattern exclusivity 0:07:16.640 --> 0:07:19.960 for a period, let's say ten years, and then when 0:07:19.960 --> 0:07:23.880 the pattern expires, generic manufacturers will take over and will 0:07:23.880 --> 0:07:26.520 manufacture the drug and it will become much much cheaper, 0:07:26.840 --> 0:07:29.400 and it will be widely way little bile worldwide, so 0:07:29.480 --> 0:07:32.080 not just in the US, but worldwide. Now, this in 0:07:32.120 --> 0:07:35.560 principle is a very good model because secures long term, 0:07:35.640 --> 0:07:39.600 very cheap supplies of all kind of drugs, and it 0:07:39.640 --> 0:07:45.520 also secures that there's investments in new products. So what's 0:07:45.520 --> 0:07:47.760 happened over time is, of course more and more products 0:07:47.800 --> 0:07:53.040 go of patent so today way more than all pharmaceuticals 0:07:53.160 --> 0:07:57.560 used in the United States is generic products. Now we're 0:07:57.560 --> 0:08:00.160 the leaders in that. So we produced you know, more 0:08:00.160 --> 0:08:04.920 than one out of ten pills, tablets, medications, injections that 0:08:04.960 --> 0:08:08.160 are taking every year, every single day in in the US. 0:08:08.320 --> 0:08:11.680 They come from US, come from Teva, and worldwide, were 0:08:11.680 --> 0:08:15.040 the leaders with the biggest manufacturer worldwide, with you know, 0:08:15.120 --> 0:08:17.280 many manufactories around the world, and we do a lot 0:08:17.320 --> 0:08:21.840 of different products. So what's been happening then and hurting 0:08:21.880 --> 0:08:24.000 us a little bit financially and we now adjusted to 0:08:24.080 --> 0:08:27.800 it was really that we have been accumulating many different 0:08:27.800 --> 0:08:31.440 companies twenty mergers over twenty years, and then all of 0:08:31.440 --> 0:08:34.280 a sudden, the FDA started approving a lot of Chinese 0:08:34.440 --> 0:08:38.400 and engine manufacturers, and prices on US generics went even lower. 0:08:38.800 --> 0:08:40.840 Some of it even went so low that we couldn't 0:08:40.840 --> 0:08:44.640 compete because the manufacturing costs in India China is significantly 0:08:44.679 --> 0:08:47.480 lower for a lot of reasons, the cost of labor, 0:08:47.720 --> 0:08:50.680 environmental laws, and so on. So we had to say 0:08:50.679 --> 0:08:53.959 to our customers, well, we can't go to the price 0:08:54.040 --> 0:08:57.319 level and me sustainable. Now we provide a high quality product, 0:08:57.720 --> 0:09:01.400 we secure deliveries, secure supplies, and we had a good 0:09:01.400 --> 0:09:03.680 conversation with the big customers, which are from the free 0:09:03.679 --> 0:09:07.800 big buying groups, three big groups that also include pharmacists 0:09:07.800 --> 0:09:09.640 and so on, and I think we reach a good 0:09:10.120 --> 0:09:13.840 compromise where we still supply very very cheap medication, but 0:09:14.000 --> 0:09:16.880 at a level where it's sustainable. And and this is 0:09:17.000 --> 0:09:20.040 very important because if you have a product like um 0:09:20.280 --> 0:09:22.120 you and I just talked about EpiPen. We have a 0:09:22.160 --> 0:09:25.240 product where there's only one supplier and the pattern that expired, 0:09:25.679 --> 0:09:30.400 and that manufacturer gets some quality issues and manufacturing issue, 0:09:30.760 --> 0:09:33.160 then it's a real issue for society that there's not 0:09:33.200 --> 0:09:36.920 the backup suppliers. So ideally, when a product that has 0:09:36.920 --> 0:09:39.560 gone off pattern, you would like to see at least 0:09:39.600 --> 0:09:42.599 two or three companies get approval, and you'd like to 0:09:42.640 --> 0:09:45.520 see a much cheaper price, but a sustainable price where 0:09:45.520 --> 0:09:48.880 you have safety of supply, because for the public, it's 0:09:48.960 --> 0:09:52.559 important that prices come down, but it's also important that 0:09:52.600 --> 0:09:55.679 the quality is always perfect, and it's important you can 0:09:55.720 --> 0:09:57.720 always get the drug when you go to the pharmacy. 0:09:58.000 --> 0:09:59.840 And that's really you know, what what I want to 0:09:59.840 --> 0:10:02.280 in sure is that the product we do with TV, 0:10:02.400 --> 0:10:05.080 they're always the right quality and you can always depend 0:10:05.080 --> 0:10:06.920 on that you can get the product. And I'm very 0:10:06.920 --> 0:10:11.000 happy that without generic Eppin, we've been able to say 0:10:11.040 --> 0:10:14.000 that anybody in the US, if they go to the 0:10:14.000 --> 0:10:16.640 pharmacy and they don't have the original product, they can 0:10:16.640 --> 0:10:19.520 always within twenty four hours scated from US. Interesting, and 0:10:19.520 --> 0:10:21.640 we shave it within twenty four hours to any pharmacy. 0:10:21.920 --> 0:10:25.320 So in the explanation you just gave, one of the 0:10:25.320 --> 0:10:29.880 things that becomes clear is drugs. Drug pricing setting aside, 0:10:29.880 --> 0:10:32.760 even R and D and development is complicated. And yet, 0:10:33.320 --> 0:10:35.480 as you are very much aware, we are in a 0:10:35.480 --> 0:10:39.120 political presidential presidential election you're here in the United States, 0:10:39.320 --> 0:10:42.880 drug pricing will continue to be a key issue. It 0:10:43.000 --> 0:10:47.880 is often fair to say oversimplified by politicians and consumers. 0:10:48.920 --> 0:10:52.480 What do you expect will happen this year? What can 0:10:52.559 --> 0:10:56.240 you do to sort of help inform the debate so 0:10:56.320 --> 0:10:59.920 that it proceeds in in in a rational way. Yes, 0:11:00.080 --> 0:11:04.000 we've just released actually a report, an independent economic report 0:11:04.240 --> 0:11:07.520 on our worldwide activities. And in this report you will 0:11:07.559 --> 0:11:11.760 see that generics in general, of course lower healthcare costs, 0:11:12.280 --> 0:11:15.320 and the generics that we from server supplies to the 0:11:15.320 --> 0:11:18.200 American market actually in two thousand and eighteen lower the 0:11:18.280 --> 0:11:21.920 cost compared to the originator prices by forty one point 0:11:22.000 --> 0:11:25.280 nine billion US dollars, a huge amount, and part of 0:11:25.320 --> 0:11:27.720 that was actually the patient out of pocket cost. So 0:11:27.760 --> 0:11:30.959 the patients in the US saved six billion dollars are 0:11:31.000 --> 0:11:33.480 not having to pay the high copace that goes with 0:11:34.679 --> 0:11:37.679 with patented products. So are generics the answer, I mean, 0:11:37.679 --> 0:11:40.440 our generics the answer to sort of the drug pricing 0:11:40.960 --> 0:11:43.040 conundru No, it's not the whole answer, but it's a 0:11:43.080 --> 0:11:44.720 big part of the answer, which is why more than 0:11:44.800 --> 0:11:48.360 nine of all drugs consumed in the US are generics. Amazing, 0:11:48.400 --> 0:11:50.920 and generics are cheap. I mean the U s generic 0:11:50.960 --> 0:11:53.840 pricing has come down dramatically. It's now at a level 0:11:53.840 --> 0:11:56.920 where it's at the same level or below Europe. So 0:11:56.920 --> 0:12:00.240 so you don't have this disparity that you're discussing. Then 0:12:00.760 --> 0:12:04.640 on specialty products, it's a very complicated situation. As you said, 0:12:04.840 --> 0:12:07.440 there's a lot of payers, there's a lot of buyers, 0:12:07.600 --> 0:12:10.520 there's a lot of intermediates, so it makes it very 0:12:10.600 --> 0:12:15.120 very common. There's no simple solution. I've been supporting very much. 0:12:15.400 --> 0:12:19.160 What also farmers bringing forward that for sure, transparency is 0:12:19.200 --> 0:12:23.120 good because if you get more transparency on pricing on rebates, 0:12:23.200 --> 0:12:26.120 that can only help making the system of efficient. I'm 0:12:26.160 --> 0:12:29.040 not saying it's the solution to everything, but I think 0:12:29.120 --> 0:12:32.040 at least it's something that could be done without any 0:12:32.080 --> 0:12:35.800 major harm to anybody. And why would you not want transparency? 0:12:35.840 --> 0:12:37.840 You could see right? All right? I want to wrap up. 0:12:37.840 --> 0:12:40.280 Only got about a minute left. But you know, having 0:12:40.320 --> 0:12:44.800 gone through this pretty dramatic restructuring, you're an experienced executive. 0:12:45.200 --> 0:12:47.840 What was the thing you learned the most from sort 0:12:47.840 --> 0:12:50.679 of going through this process? From taking the job, as 0:12:50.679 --> 0:12:52.640 you say, ten days in, you sort of had a 0:12:52.679 --> 0:12:54.800 good sense that it was going to work. But I 0:12:54.840 --> 0:12:57.040 have to think you learned something along the way. I 0:12:57.080 --> 0:13:02.840 think I was confirmed in my sort of gradual stronger 0:13:02.840 --> 0:13:05.440 and stronger believing that when you know something has to 0:13:05.480 --> 0:13:07.640 be done, you might as well do it as fast 0:13:07.640 --> 0:13:10.679 as possible because it will actually work better if you 0:13:10.720 --> 0:13:14.960 do it faster. And what work do you have left 0:13:15.000 --> 0:13:16.960 to do? What's the big project you have left to 0:13:16.960 --> 0:13:19.600 do to really be able to look back and say, 0:13:19.640 --> 0:13:24.000 all right, success. So I got two really big challenges left. 0:13:24.360 --> 0:13:27.800 One is to optimize our whole manufacturing really optimize it. 0:13:28.160 --> 0:13:30.280 We've of course done a lot, but there's still a 0:13:30.320 --> 0:13:32.160 long way to go before we can say we have 0:13:32.280 --> 0:13:36.360 perfect logistics, we have perfect value chain optimization, we have 0:13:36.559 --> 0:13:39.800 perfect optimization of all the technologies we're using. So that's 0:13:39.840 --> 0:13:41.720 the one thing I really want to achieve. And the 0:13:41.760 --> 0:13:44.240 other thing I want to achieve is to see some 0:13:45.280 --> 0:13:48.640 major new launches coming out of our pipeline and see 0:13:48.679 --> 0:13:50.920 the great products we have in our stato and enjoy 0:13:50.920 --> 0:13:54.920 we really grow to a global strength and giving the 0:13:54.960 --> 0:13:58.400 benefits to patients worldwide from these new innovations. Right Courseial, 0:13:58.520 --> 0:14:00.839 thank you so much. Really a pleasure to spend some 0:14:00.920 --> 0:14:03.839 time with you, CEO of Teva Pharmaceutical based in Tel Aviv, 0:14:03.960 --> 0:14:05.559 here with me in New York City.