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Kevin Curran [00:00:00]
Today we have the largest generic drug manufacturer in the world. That's Teva Pharmaceuticals and their CEO Kåre Schultz. So Kåre I just wanted to start I was a little bit of a disappointing quarter this morning and I was hoping for you to elaborate on comments you made this morning about there being a trough in generics and what you mean by that?

Kåre Schultz [00:00:15]
Yeah. So I think we had a good quarter, the fourth quarter of last year we met all the guidance we gave. So that itself was good. Well I think you saw a bit of reaction was the consensus of the street was a high expectation for 2019 than what we came out with in our guidance and when I talk about a trough it's really a trough on total revenue and a trough on earnings and it has really nothing to do with the US generics. U.S. generics have actually stabilized which is extremely positive. But we do have a situation where our biggest product Copaxone went off patent last year and that product is going down in revenues. And then we have two fantastic products we've launched Austereo which is for Huntington's disease tardive dyskinesia for movement disorders and a jewel which is a new preventive therapy for my brain. Those parts are going up but this year the drag from Copaxone is bigger. So there's a bigger drag from Copaxone than the growth of the new products. Once we get to 2020 it will reverse itself because the absolute drag from Copaxone gets smaller and the growth of the new product gets bigger.

Kevin Curran [00:01:18]
So I did want to touch on that. So the rebound timeline for you is 2020? So this entire year is going to be a little bit tougher?

Kåre Schultz [00:01:25]
You can say that we'll have the same tough situation this year as we had last year with the loss of revenue on Copaxone that has gone generic. But we do see the growth of the new launches which is positive. That's just the balance right now between let's say 900 million dollars we lose on Copaxone whereas what we gain in the new drugs this year just means that the balance is the wrong way. And then next year TIPS around and we get a positive balance.

Kevin Curran [00:01:49]
Interesting and actually I did have the read through from Wells Fargo they were saying that the Ajovy is picking up well and beating competitors from Eli Lilly for example. I was curious is that going to be the next trajectory that's going to kind of buoy from those lower numbers from comebacks and in some of those traditional drugs that have been your main revenue drivers.

Kåre Schultz [00:02:07]
Yeah that's one of the elements. Of course the new products are what can really drive growth in revenue but it's equally important that nothing drops so to speak in the last five years you've seen U.S. generics dropping but now in the last two quarters of 2018 we've seen US generic market sort of flattening out in value maintaining its value. You also see in our numbers. We had very stable U.S. generic sales in third quarter and fourth quarter. So we're seeing a whole stabilization in the U.S. generics market which is very positive for us.

Kevin Curran [00:02:35]
Definitely if it could stabilize. But one of the things that's Teva specific was I had a Moody's note here as well that said that you know erosion of Copaxone and also pro air the inhaler product from competition will make it difficult to deleverage the company. I was wondering what your reaction is to that statement from the ratings agency and then how you're looking to reduce costs and deliver the company?

Kåre Schultz [00:02:55]
Yeah. So I think it's not exactly correct how they stated we are delivering aggressively. We've gone from a third and a half ago of 35 billion U.S. dollars to now debt of 27 billion dollars so that's a big reduction. And we will continue to take down the debt. Of course the speed per year depends a little bit on the maturities how much do we need to pay back and our cash flow. But we are totally committed to paying down the debt and we've set out a long term financing target of getting to a net debt to be thorough below 3, and we expect to get that within the three to five year timeframe. And there's no change to that plan.

Kevin Curran [00:03:33]
Interesting and you're in the midst of a restructuring plan that's obviously ongoing. I was wondering does this earnings with the trough comments and and restructuring programs that set in the floor for you to continue to restructure and build share shareholder value from here?

Kåre Schultz [00:03:49]
You can say I think I've been building shareholder value from the day I started. I think the share was around eleven dollars when I started so. But I will continue to build it. And the thing about the trough I said that already a year ago is nothing new. So basically the short version is we're following the plan and the plan will create shareholder value.

Kevin Curran [00:04:07]
Good and well we'll certainly be looking at Teva. It's one of the biggest names in, the biggest name and generic manufacturers and it is actually up still significantly from its December 24th trough that it had last year as well. So keep that in mind as you look at the stock and we thank Kåre very much for being here. And I look forward to hearing more about the restructuring plan as it materializes.

Kåre Schultz [00:04:27]
Thank you very much.

Teva Pharmaceuticals (TEVA) is anticipating a trough for 2019, but apropos of the company's name, this is a natural development in the company's restructuring according to CEO Kare Schultz.

The Israel-based generic giant's stock is slumping on Wednesday after a disappointing earnings and soft guidance that missed analyst estimates by a considerable amount.

Schultz did not inspire market confidence with his comments on a conference call with analysts either.

"This is a trough year, as we have been saying since the beginning of the plan," he said. "This is the year where we bottom out on revenue and operating profit, and in 2020 we expect to return to growth and continue to do so in the coming years based on the launches of the new products."

He explained his outlook in an interview with TheStreet's Kevin Curran, noting that the performance hit the company's conservative guidance for the fourth quarter and added that Wall Street was overly bullish in its 2019 targets.

"We'll have the same tough situation this year as we had last year with the loss of revenue from Copaxone that has gone generic," Schultz acknowledged. "But we do see the growth of new launches which is positive."

Schultz added that his comments are not indicative of his feeling on generics overall, which he noted is a market that is stabilizing.

For Teva, Schultz said that finding a balance between the loss of this key multiple sclerosis drug in Copaxone and the launch of Ajovy, a high performing migraine drug, and the development of a non-opioid pain therapy with Regeneron (REGN) will take time. As such, he feels the harsh comments on the 2019 outlook are justified.

Copaxone alone saw its revenue decline by 24% year over year after falling to generic status.

The restructuring plan that will progress over 2019 is also focused on driving down the company's debt that will tamp down earnings results in the near term but better position the company for future growth in the long term.

"We are delevering aggressively," he said. "We have gone from a debt a year and a half ago of $35 billion to $27 billion," he explained. "Of course, the speed per year depends on the maturities."

He extolled the company's plan to continue to draw down debt, taking issue with comments from Moody's that cautioned about the difficulty of this endeavor amidst the loss of Copaxone. Schultz highlighted that the debt is really an issue of timeline, not on Teva's ability to reduce the overhang.

It is still worth noting that the stock is up over 30%, even with today's tumble, from its December 24 dip alongside numerous stocks, putting the stock slump in perspective. Schultz put this further into view, hearkening back to his accession to the role at a stock price around $11 in 2017.

"The thing about the trough, I said that already a year ago and that's nothing new," Schultz pointed out. "The short version is that we're following the plan and the plan will continue to create shareholder value."

As the company continues to take its medicine and restructure it will remain a difficult stock for many investors to trust, but if the 2020 turnaround does come about it will be a key story to follow in pharma as the year pushes on.

To hear more as the plan progresses and an opening of hope possibly appears for the Peta Tikvah-based company appears, stick with TheStreet.