Too many disappointments from Teva

Shiri Habib-Valdhorn

Teva's poor results cut short a rally in its share sparked by good clinical results for its migraine headache drug.

"All of us at Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) understand the frustration and disappointment of our shareholders in light of these results,” Teva acting CEO Prof. Yitzhak Peterburg said today, after the company dealt its shareholders another blow: poor results, with a huge write-down of goodwill, and even worse - a downward revision in the company's guidance for the year.

It is difficult to believe that Peterburg's sympathy will calm holders of the battered stock. Teva's share price, which last May fell to its lowest point in a decade following the upheaval in the company, has since rebounded by 14%. This recovery was sparked by good clinical results for a drug for treatment of migraine and expectations that a permanent CEO would be appointed. Today, however, at the opening on Wall Street, the share price again fell below $30.

This is no surprise. Teva has been unsuccessfully struggling with a crisis of confidence with the capital market in recent years. Investors may be able to forgive the company for missing forecasts or downwardly revising guidance once, or even twice. When this becomes a pattern, however, it is hard to ignore, and the share price reflects that.

The capital market sees how overoptimistic forecasts are being downwardly revised time after time. This is arousing doubt, not only about whether Teva is capable of managing the expectations of the market and investors, but also whether it is able to anticipate the basic trends affecting its financing results. Even today, the downgraded forecast for 2017 includes an assumption that some regard as optimistic - that there will be no generic competition for 40 mg Copaxone in 2017. Copaxone contributed $843 million to the company's profit in the second quarter, with 85% of sales coming from this dosage, without any generic competition. There is therefore additional potential risk, even to the reduced forecast. Another significant worry for Teva and its investors is the company's huge debt, which is a drag on its balance sheet. When Teva completed its acquisition of Actavis from Allergan last year, it raised debt (at relatively low interest rates) to finance the acquisition.

"Every day and every hour of my time is devoted to the fact that we are saddled with a $35 billion debt," Peterburg said two months ago at the "Globes" Capital Market Conference. Teva is acting in a number of areas in order to focus on repayment of its debt and improving its repayment capability. Among other things, it announced layoffs of employees in Israel, which has already created unrest among the workers' committees, the Histadrut (General Federation of Labor in Israel), and MKs on the Knesset Finance Committee, which discussed the matter. In a conference call conducted by Teva executives following publication of the company's results, it was learned that at the end of 2017, Teva is liable to be unable to meet the covenants in relation its debt, and will have to discuss the matter with its creditors. One more cloud hanging over Teva.

Published by Globes [online], Israel Business News - www.globes-online.com - on August 3, 2017

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

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