Teva Shares Tumble After Company Disappoints Markets

The pharmaceutical company is in a $28.4 billion debt. Analysts says the company still lacks growth drivers

An employee at a factory of pharmaceuticals inside Teva Pharmaceutical Industries Ltd.'s in Hungary, October 2, 2012.
Akos Stiller/Bloomberg

Shares of Teva Pharmaceuticals took a beating Thursday after the company disappointed investors with weaker than expected revenues in the second quarter and concerns about eroding prices and sales in its key U.S. market.

The disappointments swamped the good news that Teva, the world’s biggest maker of generic drugs, also reported, namely that net profit dropped less than Wall Street analysts had forecast.

Teva shares, which have rallied since Kare Schultz took over as CEO last November, ended down 8% to 81.40 shekels ($22.07) in Tel Aviv in very heavy trading. In New York, the decline was sharper, with shares down 8.8% to $21.77 mid-morning local time.

Teva said it earned 78 cents a share, excluding one-time items in the second quarter, down from $1.02 a year earlier as revenue fell 18% to $4.7 billion. Analysts had forecast Teva would earn 64 cents a share excluding one-time items on revenue of $4.74 billion, according to Reuters.

Teva attributed the drop in revenue to the loss of revenue following the divestment of certain products and discontinuation of some operations. But, it said, the drop was also due continued erosion in prices in the company’s U.S. generics business as well as from generic competition to its best-selling multiple sclerosis treatment Copaxone.

Copaxone revenue in North America in the second quarter tumbled 46% to $464 million, although in Europe sales edged up 1% to $140 million. Sales of generic drugs fell by almost a third to $947 million in North America, the company’s largest market.

The revenue shortfall concerned investors more than the earnings because it calls into question Schultz’s ability to cut costs, RBC Capital Markets analyst Randall Stanicky said.

“Perhaps what is more concerning is the light revenue with virtually all U.S. segments down year-over-year, which to us will raise questions around what impact the aggressive cost cuts are having on the business which is our primary concern for the medium- to long-term outlook,” Stanicky told Reuters.

Schultz has enjoyed a honeymoon with investors since taking over as CEO after a long period of failed management at the company, Israel’s biggest by market capitalization. He elicited anger in Israel when he slashed Teva’s global payroll by a quarter as part of a cost-cutting drive, but the market rewarded him by doubling its share price.

Teva said its net debt has fallen to $28.4 billion, down from a peak of $35 billion, which the company amassed to finance the acquisition of Allergan’s generic drug business Actavis for $40.5 billion two years ago.

“The restructuring program is on schedule, we have already achieved a significant cost base reduction towards our target for the year and we continue to reduce our net debt,” Schultz said.

Teva on Thursday raised its forecast for adjusted earning per share to a range of $2.55 to $2.80 from the $2.40 to $2.65 estimated last quarter, but it maintained its outlook for revenue of $18.5 billion to $19 billion.

It was the second time since February that the company has raised its outlook, but the revision this time was modest and analysts said it showed that Teva still lacked growth drivers to offset its Copaxone losses.

“Relative to expectations that is going to disappoint,” Stanicky said. Analysts were forecasting EPS of $2.69 on revenue of $18.99 billion, according to Reuters.

On the positive side, Teva reiterated that the U.S. Food and Drug Administration was due to decide by mid-September on its migraine treatment fremanezumab, which it had originally hoped to launch in June. “We will be ready to launch immediately after,” Schultz told a conference call.

Teva has been counting on its migraine treatment to revive its fortunes, though its release has been delayed due to U.S. regulatory concerns about the manufacturing process.

With reporting from Reuters.