Teva Investors Respond With Selloff as CEO Schultz Calls Bottom

(Bloomberg) -- Teva Pharmaceutical Industries Ltd. is just a year away from switching the company’s story from survival to growth, according to Chief Executive Officer Kare Schultz. Wall Street paid back his optimism with massive share losses.

The world’s largest manufacturer of generic drugs said it will go through a “trough” year, with profit some 20 percent below previous market projections. Growth will return in 2020, Schultz said Wednesday, given Teva’s progress in slashing costs and developing potentially blockbuster drugs. The stabilization of the U.S. generic drug market, which has been shrinking rapidly in previous years, will also help, he added.

The market bought only half his story-- the part about this year. Teva lost as much as 11 percent in New York, and the shares were down 7.6 percent at 10:55 a.m.

Schultz was brought to save Teva from financial ruin after it bet big on the generic drug industry in 2016, only to see profit margins crumble in the U.S., the world’s biggest market. The gamble left the drugmaker saddled with huge debt, a problem exacerbated by eroding sales of its aging best-seller, the multiple sclerosis medicine Copaxone.

Crown Jewel

What was once the company’s crown jewel, making up for a fifth of overall revenue at one point, Copaxone has come under attack from generic competitors trying to win market share. Revenue for the drug is expected to fall $900 million this year, accounting for about half the decline in total sales. Foreign exchange trends will wipe away another $300 million, Teva said.

In response, the company is cutting costs and focusing on reducing debt. Teva slashed $2.2 billion in expenses last year and will close or sell another 11 manufacturing plants in 2019, which would bring the total figure to about 60 sites.

Teva is on track to meet its overall target of $3 billion in savings by the end of 2019, and may close more plants afterward, Schultz said. The company’s debt fell to $29 billion.

The CEO’s moves have won the confidence of Warren Buffett’s Berkshire Hathaway Inc. and Capital Group Companies, one of the world’s biggest investment houses, who are now among the three biggest shareholders.

Teva’s outlook did include some positive points. Sales in the U.S. generic drug business will see slight declines this year, a notable shift from the free-fall in previous years. The company’s two most promising products -- Ajovy and Austedo, branded treatments for migraines and Huntington’s Disease, respectively -- will add some $500 million in revenue, more than double last year’s tally.

Schultz has a history of giving low projections to calibrate investor expectations. That’s what he did after taking the reins at Teva in 2017, only for the company to beat and raise quarterly projections throughout 2018.

“Positive developments late in the year lead us to suggest nothing less than the same in 2019,” Bloomberg Intelligence analysts Curt Wanek and Elizabeth Krutoholow said in a note.

©2019 Bloomberg L.P.