Teva mulls splitting generic, branded businesses

Teva Photo: Tamar Matsafi

Most analysts are lukewarm or negative about Teva, citing its debt and uncertainty about the new CEO.

Even before starting its search for a new CEO, Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) has begun a process of careful consideration for the adoption of a new strategy - its third in a decade.

The proposed strategy could involve splitting Teva into generics and innovative divisions. Sanford C. Bernstein senior pharma analyst Aaron (Ronny) Gal opposes the idea of a split into two companies, saying that there are no hidden diamonds at Teva, and that a split will incur many costs and demand a great deal of attention from management. He also points out that it will require renewing debt negotiations on worse terms. He recommends that management reconsider increasing the company's already billion-dollar R&D budget, saying that no one is holding Teva's share for 2017.

The UBS investment bank reiterated its neutral recommendation, and expressed a lack of confidence in Teva's forecast for 2017. The bank said that even though it believes in that the generics business is capable of leading double-digit growth in the long term, it is not recommending "Buy" for the share because of uncertainty about the company's new CEO and its strategic plan. UBS cites the tendency of new managers to disagree with their predecessors' forecasts.

Oppenheimer investment house analysts Derek Archila and Marcus Ho say they will not be surprised if the Teva share continues to be traded with no significant change until the state of the company's generics business, its synergy with Actavis, who will be the new CEO, and how it will repay its debt become clearer. Oppenheimer believes that the state of the generics industry will improve towards the end of the year, and that the market will push for additional cutbacks, since it has not yet accepted the company's view that it can service the debt without reducing its dividend.

S&P credit analyst Kim Logan, who recently warned that she was liable to lower the company's current BBB credit rating, explained today that she was not altering her warning, because Teva still faced the pressure of competition for Copaxone and uncertainty about its next CEO. She cast doubt on the company's ability to implement its plans.

Bank of Jerusalem (TASE: JBNK) analyst Jonathan Kreizman directs attention to the fact that the positive surprise in Teva's revenue resulted mainly from positive momentum in a number of activities with relatively low profit margins: generics in the Far East (the joint venture with Japanese company Takeda), further improvement in its over-the-counter business, and higher-than-expected revenue from the Anda distribution company.

Published by Globes [online], Israel Business News - - on February 14, 2017

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

Teva Photo: Tamar Matsafi
Teva Photo: Tamar Matsafi
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