Teva says it will cut costs and innovate more

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The upshot of Teva's three-and-a-half-hour investor meeting Tuesday was as follows: things are going to change, and that change includes slashing costs by about $2 billion between 2013 and 2017, with the bulk of that being winnowed out by 2015. The majority of the savings will come from controlling costs and streamlining processes, some of which, like materials procurement, span 40,000 suppliers.

Executives said that the company, which is known for its generics, is going to head into the next few years with a new aim: to remain a generics powerhouse, but to use that same science-based infrastructure to create novel therapeutic entities, or NTEs. Teva has “a truly unique opportunity to become the first pharmaceutical company that encompasses both generic and branded R&D within a single organization," the company's president of global R&D, Michael Hayden said, noting that most companies have generics and innovation existing in distinct silos. Hayden described the new Teva as having a more refined pipeline, by which he meant one that will focus on CNS and respiratory businesses in addition to oncology and women's health. Pressing this point was the same-day announcement that Teva has signed an exclusive license with Xenon Pharmaceuticals for development of the experimental pain treatment, XEN402. Teva, which will cover the cost of the development and regulatory fees, paid $41 million up front, and will pay milestones that total $335 million. The medication targets sodium channels found in sensory nerve endings.

The company said it is also in a position to devote $10 billion to business development over the next five years. Credit Suisse analyst Michael Faerm wrote in his December 12 note that the strategy appears to be on several small deals, instead of a large one, a point Bloomberg noted last month.

Tuesday's announcement was a follow-up to the November earnings update which told investors to lower expectations, but lacked clarity as to the company's next moves. Faerm called Tuesday's meeting constructive in his note, because the company laid out its strategy, and noted that “the investor day contained no bombshells (positive or negative).”

Teva expects this year's generics sales to hover around $5.2 billion in North America and $3.9 billion in Europe.
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