By Josh Nathan-Kazis

If President Donald Trump imposes drug tariffs that affect the cheap generic medicines Teva Pharmaceutical Industries makes, the company's CEO says he'll have no choice but to raise their prices.

"Ultimately, you would pass that cost on to the purchaser," Richard Francis, the company's CEO, told Barron's on Wednesday, shortly after Teva reported first-quarter earnings that beat expectations and raised its full-year guidance. "That's pretty much standard. That happens with every tariff."

Drugmakers are waiting to learn their fate this week, after Trump has repeatedly warned that a "major tariff on pharmaceuticals" is on the way.

Last week, top executives of the pharma giants offered mixed messages about what the tariffs will mean for them. Pfizer CEO Albert Bourla said he was "cautiously optimistic," while Eli Lilly's David Ricks told Barron's that Bourla's optimism was "a little early."

Teva said Wednesday the broader tariffs already in place are factored into its guidance. The big question is what the sector-specific drug tariffs Trump has threatened will mean, if implemented.

Big pharma companies have been rushing to cram as much product as they can through their supply chain into the U.S. before any sector tariffs go into effect, and drug imports skyrocketed in March.

For Teva, however, a major manufacturer of cheap generic medicines, its huge volumes make that sort of strategy far less feasible.

"We are a generic manufacturer and supplier who supplies one in 14 [prescriptions] in the United States," Francis said. "When you're talking about volume of that size, we have to be pretty realistic about what we can do."

Generic drugs account for nine out of every 10 U.S. prescriptions filled, according to the industry group Association for Accessible Medicines. Profit margins for generic drugmakers are exceptionally thin, putting the industry at greater risk if drug levies do come.

Generics and biosimilars accounted for 44.4% of Teva's revenue in the first quarter of the year, while branded drugs accounted for 36%. (The balance of revenue came from Anda, a U.S. drug distributor Teva owns.)

Francis said the company is making its case to the government. Unlike other generic drugmakers, Teva's supply chain has no reliance on China, and minimal reliance on India, the CEO added.

"We do have eight manufacturing sites in the U.S.," he said. "Our supply chain is very much in the U.S., Israel, and Europe."

Francis said that Teva won't be able to immediately hike its prices if tariffs arrive, because it's locked into existing contracts.

"As those contracts come to an end, then you have a chance to reprice," he said. "We have to create sustainability here. We have to make sure we get a return on the capital we deploy. And to do that, we have to price our products effectively."

Teva reported revenue of $3.9 billion for the first quarter of the year, just below the $4 billion consensus estimate. Non-GAAP diluted earnings were 52 cents per share, beating the consensus estimate of 46 cents per share.

The company raised its full-year earnings guidance: It now expects non-GAAP diluted earnings between $2.45 and $2.65 per share, up from its previous guidance of between $2.35 and $2.65. Analysts are expecting earnings of $2.57 per share.

The previous full-year guidance disappointed investors when Teva first rolled it out in January, sending shares down 13.9% in a single day.

"I think everybody's starting to realize again, actually, Teva has a real opportunity to become a sustainable biopharma company," Francis said.

Teva shares plummeted from 2016 through 2020, as the company was left burdened by enormous debt after a series of ill-advised deals, culminating in its disastrous decision to buy Actavis Generics for $40.5 billion in 2016. Actavis's sales of generic opioids in the U.S. made Teva a major target in litigation brought by states and local governments over the opioid crisis.

Francis has been pushing a reorientation of the company away from generics. In 2023, he announced a plan to slim down its generics business. He has also said the company intends to sell its business making drug ingredients, called TAPI. On an investor call Wednesday, Francis, said the company is "still in advanced discussions" about TAPI.

The stock has been climbing since shortly after Francis arrived as CEO in early 2023, and the price of its American depositary receipt more than doubled in 2024. It was down 26.9% this year as of Tuesday's close. On Wednesday, the ADR was up 5.8%.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 07, 2025 13:01 ET (17:01 GMT)

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