Teva campus construction to continue despite cost


The Ra'anana campus will house Teva's headquarters, laboratories, and production facilities.

Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) began construction of a new campus for the company in Ra'anana in late 2014. The initial NIS 500 million cost estimate ballooned to NIS 1.2 billion ($320 million). Questions are now being asked about whether the project will proceed, in view of the wave of cutbacks at the company aimed at maintaining its positive cash flow, after its debt swelled to $35 billion following the acquisition of Actavis in 2016.

The campus is designated to house Teva's headquarters, laboratories, and production facilities. Several hundred million dollars are not a large amount in comparison with Teva's cash flow, but costs of real estate projects tend to exceed what was planned. In its previous statements about the project, Teva said that the investment would immediately save the cost of renting the company's main offices in Petah Tikva and elsewhere, which it estimated at several million dollars a year. Teva's lease in Petah Tikva expires in 2020.

Long-term saving, however, comes at the expense of a rather large one-time investment, at a time when the company does not have a great deal of cash. The company may also have to compensate employees who will be laid off as a result of the move to Ra'anana from other places in Israel.

Teva has already bought the land in Ra'anana for a price previously estimated at NIS 160 million, and selected Electra Ltd. (TASE: ELTR) and Tidhar to carry out the project, in cooperation with the Bjarke Ingels Group (BIG) and Moshe Tsur architectural firms. A source close to Teva, however, today said that the company probably had an escape clause with a small penalty in its agreement that the company could exercise if it chooses to forego the project.

Teva has been experiencing upheavals in recent months, culminating last week in the resignation of CEO Erez Vigodman. The company's share price lost 43% of its value last year. In view of the situation, Teva is now trying to save in all areas, and construction of a large campus at a time when employees throughout the company are coping with economic pressure is also significant for appearances' sake.

Teva said in response that construction of the campus was continuing with no changes.

"2017 not an absolute disaster for generics"

Sanford C. Bernstein senior pharma analyst Aaron (Ronny) Gal, published a review late last week in which he opines that 2017 looks better for generics than 2016. Generics is the item that caused the revision of Teva's forecasts - first for 2016, and later for 2017.

Gal states that out of Teva's more than 1,000 generic products, its revenue is concentrated in the 20 largest. He noted that Teva's generics business had suffered major damage in 2015 and 2016, mainly in its Concerta and Adderall (for attention and concentration disorders) and Pulmicort (for asthma) products. Teva has managed to bring only four new products to market, only one of them with $100 million in revenue, while Mylan N.V. (Nasdaq: MYL; TASE: MYL) and Sandoz launched more numerous and significant products.

Gal noted that Teva had 18 products almost ready for launch this year with sales amounting to $450 million. He said that the company had given a $750 million estimate, which was possible if there were more launches planned that it had not announced. He added that even if 2017 is not an easy year for Teva, he did not think it would be an absolute disaster. He said that, in his opinion, the problems in generics were already reflected in Teva's share price. He rates Teva "Market outperform" with a target price of $42.

Published by Globes [online], Israel Business News - - on February 13, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018