Teva has reached out to its major customers proposing to pullout around 80 percent of its products from shelves it identified as unviable.
Teva Pharmaceutical Industries, the world’s largest generic drug maker plans to slash its US generics portfolio by 80 percent to arrest the slide in profitability in that market, the biggest for generic drugs.
Teva has reached out to its distributors proposing to withdraw around 80 percent of products identified as unviable. For the remaining 20 percent, Teva is asking for a higher price from the distributors.
“We're not in the business of just supplying more and more volume for the sake of the volume. We are in the business of business, and that is to have a profitable business,” said Kare Schultz, the Chief Executive Officer of Teva at a recent earnings call justifying his decision.
Schultz assured that the product pull out is planned in a manner to avoid supply disruption that could affect patients or distributors.
Schultz, who took over as Teva’s CEO in September is trying to steady the generic behemoth as it battles declining sales in the US, competition to its top-selling multiple sclerosis drugs Copaxone and the USD 30 billion debt piled on to fund the disastrous acquisition of Actavis Generics business in 2016.
The product rationalisation is part of USD 3 billion cost-cutting plan rolled out by Schultz that also includes other measures like retrenching 14000 jobs globally, shutting down 12 manufacturing plants and massive downsizing of its R&D program – discontinuing 27 specialty and over 100 new generics under development.
Teva’s decision assumes significance as the company supplies one out of every seven generic pills sold in the US making it the market leader there.
Teva reported USD 17.1 billion write-downs in 2017 and said the outlook for 2018 looked poor as prices in its key US generic-drug market continue to decline. Out of Teva’s USD 22.4 billion sales in 2017, US constituted around half of those sales.
Indian drugmakers are watching Teva’s actions closely.
Other than the huge debt problem, it is pretty much the same story for Indian generic drugmakers operating in the US. They are also grappling with eroding prices, increased competition and a consolidation of the big drug-purchasing groups that give them more pricing power versus manufacturers.
Pricing erosion of generic drugs in the US on average ranges anywhere between a high single-digit and low double-digit.
Indian generic drugmakers such as Sun Pharma also have withdrawn certain pending Abbreviated New Drug Applications (ANDA) saying they were unviable.
“I think (the) market will continue to dynamically readjust to pricing pressure, as well as the relative attractiveness of different products. And that's like a little bit a new normal. And as I said, that there are products where we are seeing price changes upward because of the market dynamics,” said Dilip Shanghavi, Managing Director of Sun Pharma to analysts in February.
Amey Chalke, Research Analyst at HDFC Securities tracking pharma says Teva’s exit may benefit Indian drug makers by way of a reduction in supply and less competition.
Chalke expects the pricing pressure in the US market to ease in next six to nine months, as other large generic makers like Mylan too may trim their generics portfolio and focus more on high margin limited competition generic drugs.
“Despite cut throat competition - Indian drug makers have an edge over Teva – given that they are vertically integrated – with access to low cost manufacturing bases in India,” Chalke said.Teva doesn’t have any manufacturing footprint in India.