Teva Pharmaceuticals reported a giant $11.6 billion loss for the 2017 fourth quarter on Thursday and said the outlook for 2018 looked poor as prices in its key U.S. generic-drug market continue to decline.
The loss cut short a rally in Teva shares that had begun in early November when Kare Schultz took over as CEO, raising hopes for the financially troubled drugmaker. On Thursday, Teva stock closed down 6.9% at 67 shekels ($19.05) on the Tel Aviv Stock Exchange, but it was off more than 9.5% at $18.85 late morning local time in New York.
Schultz told analysts he didn’t expect the company’s fortunes to begin turning before 2019 as Copaxone sales bottom out and before the company benefits from new specialty products. “For sure in 2020 we will see growth,” he told Reuters.
The huge loss, which came to $11.40 a share, was due to an $11 billion charge against Teva’s U.S. generics business, bringing the total write-down for all of 2017 to $17.1 billion.
Excluding one-time items like the charge, the company earned 93 cents a share – which was down from $1.38 a year earlier but ahead of the 76 cents forecast by analysts polled, according to Thomson Reuters I/B/E/S. Revenue fell 16% in the fourth quarter to $5.5 billion, ahead of analysts’ forecasts for $5.3 billion.
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However, that relatively positive bit of news was more than outweighed by Teva’s outlook for 2018. It forecast revenue of between $18.3 billion and $18.8 billion, which it said would generate earnings per share of between $2.25 and $2.50. Analysts had been expecting EPS of $2.94 on revenue of $19.3 billion.
“With estimates for branded revenue recovery likely coming down, the argument for mid-term (2 to 4 years) recovery got tougher,” wrote Bernstein analyst Aaron Gal in a note to investors.
Schultz blamed the reduced outlook for this year on expectations that a second generic version of Copaxone will hit the market in April and that U.S. generics sales will fall another 20%.
Like other major generic drugmakers, Teva is contending with eroding prices, increased competition and a consolidation of the big drug-purchasing groups that give them more pricing power versus manufacturers.
Teva’s woes in the generic sector have been compounded by the onset of generic competition for its best-selling Copaxone multiple sclerosis drug – a proprietary drug that had long been an engine for the company’s profits.
In addition, to maintain its status as the world’s biggest generics maker, Teva made an ill-timed acquisition of Allergan’s generic drug business for $40.5 billion in 2017, a move that saddled it with massive debt just as its businesses were suffering a downturn.
Generic-drug sales fell 16.3% to $3.1 billion in the fourth quarter, from $3.7 billion a year earlier, Teva said, led by a 15% drop in U.S. sales. Sales of Copaxone fell 19% to $821 million.
Schultz has focused for now on getting Teva’s financial house in order through a restructuring plan that will combine its generic and specialty medicine businesses, cut more than a quarter of its global workforce and close many factories, and suspend dividend payments.
The plan, which generated a political and media storm in Israel in December when it was unveiled, aims to reduce costs by $3 billion by the end of 2019 from about $16.1 billion in 2017.
Three weeks ago, however, Moody’s Investors Service cut Teva debt rating to junk, and this week Standard & Poor’s said the outlook for its Teva rating was negative.
In fact, Schultz has made some progress already. Teva reported that it reduced its debt by $2.2 billion to $32.2 billion in the quarter even as its cash flow shrunk 17% to $1.2 billion. Last week, it announced two steps that would generate another $1.4 billion in cash to repay debt – half from the sale of a division and half from a legal settlement with Allergan.
“We are making strong progress on the restructuring plan, and I am optimistic about the progress made and remain confident in our ability to deliver on our targets in the coming year,” Schultz said on Thursday.