Teva Shares in Double-digit Free Fall in N.Y. and Tel Aviv After Profit Forecast Slashed

The decrease came after the company announced it would miss 2017 profit forecasts due to competition in the U.S. market

A bottle of Teva Clonazepam medication.
George Frey/Bloomberg

Teva Pharmaceutical Industries said on Thursday that it would miss 2017 profit forecasts due to competition in the U.S. market and weakening sales of its multiple sclerosis drug Copaxone. The announcement hammered its shares, the price of which dropped 13.65% on the Tel Aviv Stock Exchange to close at 42.38 shekels ($12.07). The stock closed on the Nasdaq exchange in New York, off even more — down 19.9% to $11.23.

This was just the latest blow for the Israeli company, the world’s largest generic drug maker, which faces narrowing profit margins, debt of nearly $35 billion that could lead to a credit-rating downgrade and an irate investor base that seeks a clear direction.

On Wednesday, U.S. shareholder and pharmaceutical company Allergan announced it would begin selling down its 10% stake in the company.

The plunge in Teva’s share price and the sharp rise in yields on its bonds reflect increasing concern about the company’s ability to service its bank loans and meet its bond obligations.

The capital markets appear to be less interested in the fact that the company missed its third-quarter profit projections and that it has lowered its forecast for the year as a whole, focusing instead on its lowering of its cash projections for 2017.

Teva’s new CEO, Kare Schultz, took the reins this week and promised to improve the firm’s balance sheet.

“I recognize the significant debt burden that Teva is currently under, and it will be an absolute priority for me that we stabilize the company’s operating profit and cash flow in order to improve our financial profile,” Schultz said on Thursday.

Schultz declined to answer questions after brief remarks during a conference call and left other company executives to respond to analysts’ inquiries.

Schultz needs to convince investors that Teva can boost growth and cut debt that was built up mostly to finance its $40.5 billion purchase of the generics business Actavis, part of Allergan, last year. His predecessor, Yitzhak Peterburg, stepped down in February following criticism for a string of expensive acquisitions and delayed drug launches.

The latest drop in Teva shares brings the drop in its share price to nearly 64% since mid-July.

“The shares will likely drop further after this latest guidance cut and are unlikely to recover until the new CEO lays out his vision for the company and gives a steer on the 2018 outlook, which will be just as challenging as 2017, given the rollout of Copaxone generics,” Berenberg analyst Alistair Campbell said in a note, referring to the launch of cheap, copycat competitors to Copaxone.

Similar to poor second-quarter results three months ago, which triggered a big share sell-off, Teva attributed most of its problems to rapidly falling prices of generic drugs in the United States.

It also cited a decline in sales of Copaxone, which has just begun to face generic competition, along with a lower-than-expected contribution from new generic launches in the United States and a lower contribution from Venezuela.

“We are now facing two headwinds: continued pressure in U.S. generics and in our own Copaxone,” said interim Chief Financial Officer Mike McClellan.

The fact that even in the past quarter, when Teva still enjoyed a near monopoly on Copaxone, the company only cut its debt by $400 million is additional evidence of the hard road ahead.

With Copaxone prices falling around 10% in the third quarter and generic competition starting sooner than expected, Teva again reduced its 2017 estimates; executives declined to comment on 2018. It cut its 2017 earnings per share forecast, excluding special items, to $3.77 to $3.87, from $4.30 to $4.50, and its revenue forecast to $22.2 billion to $22.3 billion from $22.8 billion to $23.2 billion. Teva reported third-quarter adjusted earnings per share of $1.00, down from $1.31 a year earlier, on revenue up 1% at $5.6 billion.

Profits from sales of generics fell to $619 million from $982 million, on sales of $3.01 billion, down from $3.26 billion. Sales of Copaxone fell 7% to $987 million.

“We now project approximately $400 million of revenues from new product launches in the year, compared to the previous projection of $500 million,” Teva added.

The company had planned to pay down $5 billion of debt in 2017 and was working to sell off noncore assets to that end. But McClellan said debt payments would only be $3.5 billion to $4 billion. In September, Teva said it would sell the remaining parts of its specialty women’s health business for $1.38 billion. It said it expected to net $2.3 billion from asset sales in 2017.

McClellan said there was no plan to raise more equity but it would be considered with Schultz and the board. Teva will pay a quarterly dividend of 8.5 cents a share, unchanged from the second quarter, when it cut the payout by 75%.