Teva's CEO Was $2.8 Billion Down on His Second Day on the Job
(Bloomberg) -- Days into his new job as CEO of Teva Pharmaceutical Industries Ltd., Kare Schultz is already $2.8 billion in the hole.
Shareholders shaved that much off the company’s market value after the world’s largest maker of copycat drugs failed to dispel worries that the worst may not be over. Schultz, 56, tried. The Danish pharma veteran told investors on Thursday that it was an “absolute priority” to bolster profits and cash flow.
“Kare faces a much more daunting challenge than I had,” said Jeremy Levin, the South African who ran Teva briefly until he fell out of favor with the board in October 2013 over how to restructure what was then Israel’s crown jewel. Teva’s woes snowballed following his exit, prompting the drugmaker to once again go in search of an outsider. “His success in bringing the company to its rightful position depends critically on complete support from the board,” Levin said.
Once among the world’s 20 biggest drugmakers, Teva has been in a rapid decline. On Thursday, it slashed its 2017 profit forecast for a third time as a key competitor began selling a cheaper version of its bestselling drug Copaxone, while its generic drugs faced intensifying competition and declining prices in the U.S., their largest market.
Investors recoiled after the company also pared its dividend, signaled it may sell new shares, and reduced the goal for paying down some of its $34.7 billion in debt this year. The stock dropped to its lowest in 17 years in New York.
“We need to build on the company’s ongoing efforts to strengthen operations, improve financial performance, and re-position Teva operationally and financially,” Schultz told investors on a conference call. The former CEO of Denmark’s H. Lundbeck A/S was picked by Teva’s board in September following a seven-month search. His appointment, the first of a non-Jewish person to lead the company, marks a departure in the 116-year history of Teva.
Even before his arrival, Teva had been shedding assets, closing factories and firing employees following an ill-timed $40.5 billion bet on the generics industry. The acquisition last year of Allergan Plc’s copycat-drugs business left the company with debts that are almost three times its $11.4 billion in market value. In September, the company amended its loan covenants to help meet its debt obligations.
Shares of Teva plummeted 20 percent in New York to close at their lowest since May 2000, extending this year’s rout to 69 percent.
The company’s bonds also fell to the lowest in months, while credit-default swaps insuring Teva’s debt against losses soared to the highest on record. An increase signals deterioration in perceptions of credit quality.
Feeding into those concerns were Teva’s plans to cut expected debt repayments this year by as much as $4 billion, down from an earlier projection of $5 billion. The company said was this due in part to delays in receiving the proceeds of asset sales. Teva agreed earlier this year to sell its global women’s health business for $2.5 billion. It’s also in talks to divest its European cancer and pain-treatment divisions, which could be valued at about $1 billion. The remaining transactions are expected to close this year and in 2018.
Teva’s new managers will consider selling more equity, interim Chief Financial Officer Michael McClellan said on the conference call, signaling that existing shareholders’ investments could be further diluted. The drugmaker also slashed its dividend for the third quarter to 8.5 cents a share from 34 cents a year earlier.
The company’s recent woes were exacerbated when Mylan NV last month began selling a cheaper version of Teva’s Copaxone, marking the end to years of fiercely disputed patent challenges and legal battles. The move, while widely anticipated, is a blow for Teva as the multiple sclerosis treatment had generated nearly one-fifth of its revenue last year and a “significantly higher percentage” of its profit, according to its annual report.
The entry of a cheaper competitor will erode about 30 cents a share from Teva’s earnings this year, the company said.
The company’s troubled generic drugs division -- which generates more than half of its revenue -- contributed to the dimmer outlook. Teva expects about $100 million less in revenue from new products in the U.S amid continued price declines for the industry. The company also anticipates lower cash flow from operations, partly as a result of a dispute with Allergan regarding working capital that Teva expects to resolve next year.
Though Schultz declined to take any questions from investors on the Thursday call, his decision to speak at all prompted his predecessor to laud his courage.
“He’s a brave leader,” Levin said.
©2017 Bloomberg L.P.