Teva: Generic drug giant stumbles into NJ with $40M tax break from you
But when
"At least when you discuss drug pricing now you can't say that
Teva, the world's biggest generic drug maker, said it is planning to move its
While
Its wholesale customers are consolidating and driving hard bargains. It is fending off low-cost challengers. It is hamstrung by billions of debt. And Schultz, its sixth CEO since 2012, is eight months into a restructuring plan that includes axing thousands of employees and consolidating operations worldwide. See the video above for a summary.
Teva last year had a net loss of
For
The tax breaks look reasonable, given the spending power that the company's employees could bring, economist
Teva is based in
Teva is Hebrew for nature, and while it might not have the name recognition of, say,
The company is such a source of national pride in
Teva is best known as the world's biggest generic drug maker, making copies of brand-name drugs that lose their patents, typically 20 years after it is filed.
Generic drugs are viewed as the best way to slow down the rising cost of pharmaceuticals. They account for almost 90 percent of prescriptions, but just about a quarter of total spending. Their average cost is
The result: Pharmacists say insurers are steering their customers to generics, leaving the pharmacies to shop for the lowest price.
"You have to find the least-expensive generic," said
Teva seemed poised to take advantage of the industry's trends. Two years ago, it bought Actavas, the generic drug business of Allergan, for
Allergan, based in
Investors cheered, sending Teva's stock up 16 percent the day the deal was announced.
"The acquisition of Actavas Generics comes at a time when Teva is stronger than ever -- in both our generics and specialty business," then CEO
In hindsight, analysts said, the timing of its merger was bad.
Generic drug industry's cliff
What happened?
1. Teva's customers are consolidating.
The drug industry is a rare business in which the consumers are largely left out of the purchasing process. Simply put, drug companies sell to wholesalers. Wholesalers sell to retail pharmacies. Retail pharmacies sell to consumers. Consumers, with a prescription from their doctor, pay a predetermined price set by their private health insurers or Medicare.
Teva's customers are getting bigger. CVS, Walgreens and Walmart, for example, have partnered with wholesalers and now account for 90 percent of generic drug purchasing, according to
Teva expects more competition soon. But those competitors, such as a bid by
2. Teva's competition ramps up.
The FDA, under pressure to rein in the cost of prescription drugs, began to approve generic drugs more quickly -- 580 in 2015, 630 in 2016, 843 in 2017, according to the agency.
It has attracted other generic drug manufacturers, including several from
Sales of its generic drugs alone fell 26 percent in the first half of the year, Teva reported.
"What surprised a lot of people is the generics industry eroded as fast as it did," said
3. Teva is burdened with debt.
Its merger with Actavas contributed to its debt of about
"We will not do big-scale things," Schultz, its CEO, told analysts on
There are other clouds hanging over the company.
Copaxone, its blockbuster multiple sclerosis drug, now has competition from generic copies, causing sales to decline from
And Teva faces lawsuits ranging from its alleged roles in marketing opioids to fixing prices.
Teva declined a request for an interview.
"Teva continues with a significant restructuring plan to restore its financial security and stabilize its business," it said in a statement to the
"A key element of the plan, as communicated in
Among those rushing to Teva's aid:
Teva said last month that it would move its
Fueling the decision? The EDA approved tax breaks through its Grow New Jersey program of up to
The EDA said
Its calculation includes both direct activity like employees' payroll taxes and indirect activity like employees' spending, say, at local restaurants and retailers.
The EDA declined an interview request.
"Teva met all of the legislatively established requirements for the Grow New Jersey program at the time of its approval," the EDA said in a statement, noting that Teva won't get tax breaks unless it adds the jobs and spends the money that it promised.
Can Teva become a company that, in fact, grows in
Schultz, the CEO, was hired a year ago from the Danish pharmaceutical company Lundbeck A/S, where he was CEO for two years.
While Schultz delivered Teva to
In December, Teva announced a plan to layoff 25 percent of its work force as part of a bid to save
"He's doing the tough thing that other people have been unable to do," said
The strategy includes finding generic drugs that require more manufacturing expertise, Lefkowitz said. "Hopefully in those less-competitive markets they can compete with two, three, four people, as opposed to 13 and 14."
On his call with analysts last week, Schultz was optimistic that the company's Copaxone drug was holding its own in the face of generic competition.
But any hope of a fast turnaround faded away. He said generic drug prices would likely continue to get squeezed. And 2019 would be another painful year. Teva's stock fell 5.6 percent the day he spoke to analysts.
"This is not the end of the road," Schultz said on the call. "We would like to do better. But it's my policy to set targets and you don't discuss new targets before you reach them. We will reach these new targets in three to five years. Once we reach them, we will set new targets."
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