Soon after Kåre Schultz was named chief executive of Teva Pharmaceuticals (NASDAQ:TEVA) in 2017, he told Bloomberg TV that he was “the kind of person who likes (a) challenge and (is) inspired by challenges.”
The Dane certainly got what he wanted and holders of TEVA stock are paying the price.
At the time of Schultz’s hiring, Teva was drowning in about $35 billion of debt thanks to its ill-advised $40.5 billion acquisition of Allergan’s (NYSE:AGN) Actavis generic drug businesses in 2015, a deal so bad that it nearly drove Teva out of business. Teva took a $6.1 billion write-down on the Actavis transaction and announced a three-year restructuring plan, laying off 25% of its workforce, roughly 14,000 people. The company also shuttered operations in 44 countries and overhauled its senior management.
While Schulz’s cost-cutting has reduced Teva’s debt by more than $8 billion, it will take more to bolster the company’s balance sheet. Both S&P and Moody’s rate Teva’s debt as “junk,” further complicating any turnaround
Teva continues to struggle to find a replacement for its blockbuster multiple sclerosis treatment Copaxone, which lost its patent protection several years ago and now faces competition from generic makers. The drug’s decline has been staggering. Copaxone generated $1 billion in revenue for Teva in the first quarter of 2016; during its most recent quarter, Teva reported North American Copaxone sales of just $271 million, a decline of 41% on a year-over-year basis.
Analysts Are Skeptical About Austedo Claims
The company has touted its Huntington’s disease/tardive dyskinesia (TD) treatment called Austedo, which reported sales in the most recent quarter of $105 million. Huntington’s disease is a fatal neurological condition, while TD describes the involuntary movements that are side effects of some psychiatric drugs. Teva is seeking FDA approval for Austedo to also be used in the treatment of Tourette’s Syndrome, a neurological condition associated with unintended vocalizations and repetitive motions.
Wall Street analysts are skeptical whether Teva will see a hoped-for tenfold increase in the number of TD patients taking Austedo, which would result in “peak sales” of more than $2 billion, according to Fierce Pharma.
“We have one competitor, but between us and that one competitor, we have still only a very low level of patients receiving treatment in the U.S.,” Schultz said during a recent conference call. “So, we are quite convinced that this product can keep on growing for the foreseeable future.”
Daunting Legal Challenges
Teva also faces some daunting legal challenges, including multiple lawsuits over its role in the opioid crisis that center on the company’s production of generic oxycodone. The U.S. Department of Justice and state attorneys general are investigating Teva for allegedly fixing generic drug prices. Though media reports indicate that both cases may soon be settled, that’s not enough of a reason to buy TEVA stock.
As my colleague Vince Martin noted recently, even if Teva somehow managed to stabilize its cash flow, it would be at least a decade before the company could pay a dividend thanks to its debt. It’s no wonder that BioPharma Dive put Teva on its list of companies at “high risk” for going bankrupt this year.
TEVA stock has tumbled more than 70% over the past three years. Short of a miracle, I see no reason for them to rebound anytime soon.
At the time of this writing Jonathan Berr didn’t hold a position in any of the aforementioned stocks.