Teva’s challenges mount amid search for new chief
Tel Aviv: Teva Pharmaceutical Industries Ltd’s search for a new chief executive probably just got a little tougher after the world’s biggest maker of generic medicines pared its profit forecast for a second time and slashed its dividend.
The barrage of bad news angered investors already low on patience with Teva, sending the stock down by the most in almost two decades and extending the decline in the past 12 months to more than 50%. The Petach Tikva, Israel-based company cut the dividend by 75% from the first quarter to 8.5 cents a share. Within hours, Allergan Plc, the drugmaker’s largest shareholder, said it would sell its stake in the next couple of months.
The worsening outlook adds to the challenges that await a new chief, who will be tasked with containing the fallout of last year’s ill-timed $40.5 billion acquisition of Allergan’s knockoff-drugs division. That gamble failed to pay off as generic drugmakers began seeing their profit margins squeezed due to a drop in prices. It also left the company saddled with debt, and led to the ouster of top executives including CEO Erez Vigodman in February.
“All of us at Teva understand the frustration and disappointment of our shareholders in light of these results,” interim CEO Yitzhak Peterburg said in the statement. “We will continue to take action to aggressively confront our challenges.”
Shares of Teva plummeted by the most since February 1998 in both New York and Tel Aviv. It plunged as much as 20% in the US.
Meanwhile, Allergan—which got its 10% stake in Teva as part of the payment for the generics unit—said it isn’t a long-term investor in the firm. The US company, which was required to hold the shares for a 12-month period that ended this week, had previously said that its first-quarter profit was reduced by a $1.98 billion write-down of the value of the stake.
Allergan was also forced to delay the release of its second-quarter results on Thursday because it had to reflect the reduced dividend that would be paid by Teva, Daphne Karydas, the senior vice-president for investor relations at the US company, said on a conference call.
Earnings per share for the year will probably range from $4.30 a share to $4.50, the Petach Tikva, Israel-based company said in a statement on Thursday. The sales forecast was cut to as low as $22.8 billion, amid an acceleration in erosion of prices and delays in approval for cheap copycat medicines in the US, its largest market. In January, Teva had lowered the profit outlook to $4.90 to $5.30 this year, with sales ranging from $23.8 billion to $24.5 billion.
“Our board and our management team are committed to acting in the best interest of shareholders,” Peterburg said on a conference call with analysts and investors, in response to a question about whether it makes sense to break up the company. “We evaluate all the time the situation, and I think we’re doing the right thing now.”
In the second quarter, profit excluding some costs dropped to $1 billion from $1.23 billion a year earlier, before Allergan’s generics business was folded into Teva’s operations. That missed the $1.12 billion average of analysts’ estimates compiled by Bloomberg. Sales climbed 12% to $5.7 billion.
The Allergan deal made Teva the world’s biggest maker of copycat medicines, but the drugmaker has faced criticism for paying too much in a wrong-way bet on the global generics industry.
The Israeli company, which had $33.6 billion in market value and $35.1 billion in debt at the end of the second quarter, has said it plans to divest some assets including its global women’s health and European cancer and pain-treatment divisions.
The divestments and other asset sales will help generate at least $2 billion, exceeding the initial target of $1 billion, Peterburg said on the conference call. The sales are likely to be completed by the end of the year, and the company is also continuing to look over other “non-core” operations, he said.
“This review will ensure business is much more focused and efficient in the rapidly changing competitive environment,” the interim chief said. Teva also plans to close six plants this year and nine others in 2018.
Peterburg in May had set a more ambitious target for cost-reductions this year, raising the goal to $1.5 billion. The company at the time said it was putting most other major strategic decisions on hold until it completes its search for a permanent CEO, limiting the company’s options to pay back its debt-holders. Bloomberg