Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) is showing distinct signs of recovery. The share price of the ailing Israeli pharmaceutical company has risen over 10% in the past week (including 3.5% yesterday) to $24.02, giving a market cap of $24.5 billion. The share price is up 23.5% over the past month and 118% from its low-point at the beginning of November 2017.
It can surely be no coincidence that the turning point in Teva's fortunes came on November 1 when Kare Schultz took over as CEO. Several days later the company announced its third quarter results, missing the analysts' estimates and cutting its guidance for the second successive quarter. The share price fell slumped to $10.85. At the post-results conference call Schultz did not say very much other than that the company's debt burden was his major priority.
He has proved to be a man of action rather than words. By the end of the month he had reorganized Teva's management structure, merging the separate global units for generics and specialty medicines, among other things, and sweeping out many of the managers who had led Teva to disaster.
By mid-December, he had announced a far-reaching streamlining plan which involved a 25% cut in the workforce - 14,000 layoffs worldwide, including 1,700 employees in Israel. He skillfully navigated perilous waters in Israel with politicians vowing to hit Teva's tax breaks and the Histadrut threatening strikes.
Teva's share price had hit almost $70 in August 2015, giving a market cap of $70 billion, when the $40 billion acquisition of Allergan's generics division Actavis was announced. The euphoria about then CEO Erez Vigodman's 'genius' move in abandoning the stalled hostile takeover of Mylan soon evaporated.
It turned out to be a disastrous acquisition, all the more so because Teva burdened itself with a huge debt to complete the purchase. Many felt that Actavis had been overvalued anyway and US government pressure to lower generics prices and increased competition meant that Teva's revenue since the Actavis acquisition is now lower than it was prior to the deal.
By the time Teva's second quarter 2017 results were announced last August, and guidance was cut, the share price was worth less than $32, and by the time Schultz took over it had plunged to just $11.23, giving a market cap of $11.4 billion.
The company may have been boosted by Schultz's appointment and the feeling that there was a competent captain at the helm, but what has changed over the past month? Firstly the first quarter results for 2018 showed the debt consistently falling. It is now below $30 billion with stronger than expected cash flow from Copaxone sales even though there is now generic competition for the multiple sclerosis treatment's 40mg dosage in the US.
After several delays, the US Food and Drug Administration (FDA) will respond to Teva's marketing request for migraine treatment fremanezumab, the branded drug on which Teva is banking on in the coming years to fill the vacuum left by lost Copaxone revenue. There is growing confidence that the migraine treatment could be on sale by the end of the year, while Huntington's treatment Austedo, already on the market, is predicted to have $1 billion annual sales by 2023.
However, generics remains Teva's principal source of income and there are signs over the past month that pressure on US generics prices is finally easing with all pharma stocks higher in the past few weeks.
Schultz still has much to do and cannot afford to be complacent. After Teva's 2017 report was published in February, he spoke about a "two-year turnaround timeline" and "a clear move upward" in 2020. In terms of reducing the debt, that timeline probably still holds, despite the company's better than expected performance in recent months.
Most importantly, Teva now feels like a company with a promising future, rather than an enterprise being dragged down by debt and its past failures.
Published by Globes [online], Israel business news - www.globes-online.com - on June 13, 2018
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