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Stung by declining prices for generic drugs and debt, Teva Pharmaceutical said it would cut 7,000 jobs by the year's end and take a host of other cost-cutting measures, CEO Yitzhak Peterburg said Thursday after the company reported a steeper than expected loss.
Teva also plans to close or sell six plants in 2017 and nine more in 2018. The firm has also decided to pull out from 45 countries by the end of 2017.
Teva reported a 18.4 percent drop in second-quarter earnings on Thursday, a bigger drop than Wall Street had expected, causing its share price to tumble. On the Tel Aviv Stock Exchange it ended down 17.8 percent to 91.50 shekels ($25.42) and in New York it was down even more in late trading – a drop of 23 percent to $24.18.
The second quarter caps a year of bad news for the company that includes the purchase of Allergan’s generics business, which left it with a huge debt, and the departure of its CEO and chief financial officer. In addition, on Thursday Teva said a New York court rejected its claim of fraud against the owners of Rimsa, a Mexican company it bought last year.
In a conference call with analysts, Teva executives offered little in the way of hope for a turnaround, saying the company expected the fall in U.S. generic drug prices to accelerate in the second half of 2017 and into 2018.
“The board understands our shareholders’ disappointments,” said Chairman Sol Barer. “We understand that significant change is required and we all have a sense of urgency.”
Teva downgraded its profit outlook for all of 2017 to an adjusted profit of $4.30-$4.50 a share from a previous $4.90-$5.30. But Peterburg warned that even that reduced figure was not certain: It assumes that the company won’t face generic competition for the 40-milligram version of its best-selling Copaxone multiple sclerosis drug. Generic competition could lower profit by 20-25 cents a share.
Revenues are now expected to total $22.8 billion to $23.2 billion, down from a previous forecast of $23.8 billion to $24.5 billion, Teva said.
Aside from the job cuts, Teva said it also plans to close or sell six plants in 2017 and nine more in 2018, and will pull out from 45 countries by the end of 2017. It also cut its interim dividend by 75% to 8.5 cents from 34 cents.
Asked when Teva would choose a new CEO to replace Erez Vigodman, who stepped down in February, Barer declined to offer a timetable. He said there would be no rush and the right candidate must have “significant CEO level experience at major pharmaceutical companies.”
Berenberg analyst Alistair Campbell said the company was “under intense pressure,” given its lack of a permanent CEO or CFO and stretched balance sheet.
“This is a very tough quarter for Teva,” said Umer Raffat, an analyst at Evercore ISI. “I see a true floor somewhere between $18 to $27 a share depending on what end of guidance, cost cuts and multiple you’re willing to assume. If I just take midpoint of these two scenarios, perhaps the true floor is in low-mid $20s a share.”
Teva, the world’s largest generics drug maker and Israel’s biggest company, said it earned $1.02 a share excluding one-off items in the second quarter, down from $1.25 a share in the same period last year. Revenue rose 13 percent to $5.7 billion.
Excluding one-off items, Teva posted a loss of $5.94 a share, turning around from profit of 20 cents a year earlier.
Teva, which bought Allergan’s generics business for $40.5 billion last August, was expected to earn $1.06 a share on revenue of $5.72 billion, according to analysts polled by Thomson Reuters I/B/E/S Estimates.
Global sales of Teva’s best-selling multiple sclerosis drug Copaxone fell 10 percent in the quarter to $1.02 billion.
Peterburg said Teva expects to receive $2 billion from the sale of its women’s health division as well as some of the products from its European oncology division — substantially more than the company’s early expectations. Teva is looking into selling other units in 2018 that are outside its core business, he added.
The Actavis acquisition had resulted in savings of $800 million and would provide synergies and savings of $1.6 billion by the end of the year, $100 million higher than earlier projections, he added.
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