The positive aspects of the third quarter financial report that Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) published last Thursday - improved cash flow, upgraded guidance, launching of a biosimilar for Rituxan and stability in Copaxone sales - pushed the company's share price up 4.6% on Thursday in New York. On Friday, after Teva provided investors with even more certainty about servicing the company's debt, its share price shot up 9.8% more, making a 14.8% gain in two days of trading and sending the company's market cap up to $10.8 billion - its highest point since July.
In response to Teva's report, IBI pharma and medical analyst Steven Tepper wrote, "Teva's report is starting to show signs of stability, although they are still affected by loss of revenue from Copaxone, in comparison with the corresponding reports in 2018. The market is starting to realize that despite stormy seas, CEO Kare Schultz is proving his success in navigating the ship, with a safe harbor already in view."
Friday's gains by the share came after Teva announced a $1.5 billion private issue of senior euro and dollar bonds. The issue is designed to fund cash purchases of the company's bonds: those bearing 2.2% and those bearing 3.65% interest, both maturing in 2021. Teva's announcement stated that the company's bonds were trading at yields of up to 8.1%. Teva's debt has junk bond ratings of Ba2 and BB.
The bond issue comes as no surprise. Teva stated in the past on numerous occasions that it would have to reschedule debt ahead of its large debt falling due in 2021, but said that it would do this according to the market conditions. In a conference call following the publication of its reports on Thursday, outgoing Teva CFO Michael McClellan said that Teva was examining the conditions, and would make a bond issue if it appeared logical. He added that the company was encouraged by recent interest rate trends in the market in general, and in Teva's bonds in particular. McClellan resigned his position following the publication of the reports, and will be replaced on December 22 by Flex SVP finance Eli Kalif. Until then, Schultz will also serve as Teva's CFO.
Teva finished the third quarter with $4.26 billion in revenue, down 5.9% in comparison with the corresponding quarter last year. Teva's net GAAP accounting loss attributable to shareholders was $314 million, compared with a $273 million loss in the third quarter of 2018. Teva's non-GAAP net profit attributable to shareholders, excluding various accounting items, totaled $637 million, $0.58 per share.
Uncertainty about the opioids compromise
The difference between Teva's GAAP net loss and its non-GAAP net profit is the result, inter alia, of a $468 million provision, mostly for legal proceedings involving opioid pain relievers. Teva already set aside $646 million in the preceding quarter, mostly for opioids, making its total provisions for this over $1 billion. Teva recently reported that it was aiming at a compromise that would avoid further legal proceedings in this area. The plan includes transferring drugs and cash payments, with the value of the drugs, which is determined by the wholesale price, being $23 billion over 10 years, the cash portion of which will be $250 million.
This plan has not yet received final approval, but Schultz said in the conference call that he hoped it would be approved, and that the process was continuing. Nevertheless, Morgan Stanley said last week that two opioid trials were scheduled to begin soon, a fact that is inconsistent with the global compromise plan. Morgan Stanley mentioned the trial in New York, in which Teva was one of the defendants, and which was brought forward by two months to January 2020, as well as another trial in a county in Texas scheduled for 2021.
Tepper commented, "There is additional clarity about the emerging compromise in the opioids claims. The company has made aggregate provisions of $1 billion, which it says reflects the lower range of its projection for the cost of the affair." At the same time, he qualified his statement, saying that uncertainty still existed, and would likely continue causing volatility in Teva's share price.
As for the bond issue, Tepper wrote that Teva had not stated what its maturity date would be. He noted that it was a positive and necessary step that would reduce the financial pressure on the company in the coming two or three years.
Published by Globes, Israel business news - en.globes.co.il - on November 10, 2019
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