To Relieve Cash Crunch, Teva Seeks Partners to Help Develop New Drugs

A spokeswoman for the Israeli phamaceutical company says, 'It’s not to fund the whole pipeline, just some projects in it'

A bottle of Teva Clonazepam medication.
George Frey/Bloomberg

Teva Pharmaceuticals is looking to team up with other drugmakers to fund some of its development pipeline as it struggles with debts and expiring patents.

“We are looking for partners ... a series of partners. It’s not to fund the whole pipeline, just some projects in it. A small part of it,” Teva spokeswoman Denise Bradley told Reuters in an email on Wednesday.

Teva needs extra financial firepower to develop new drugs and has few options left other than striking alliances with big pharma players, sources familiar with the company said.

“Teva will avoid injecting any extra funding in new drugs,” one of the sources said. “They will partner with other big pharmas and share the proceeds.”

Earlier this month the world’s largest generics drugmaker, which is facing price erosion in the United States, reported a steeper than expected drop in second-quarter earnings, slashed its dividend by 75% and cut its 2017 forecast.

Teva is saddled with debts amounting to some $35 billion, mostly from financing its $40.5 billion purchase of Actavis — Allergan’s generics business — last year.

A loss of confidence in the company’s management led to a nearly 50% drop in Teva’s shares since August 3, while losses are about 75% since the start of 2016.

Investors say Teva paid too much for Actavis, prompting CEO Erez Vigodman’s resignation in February and his temporary replacement by Chairman Yitzhak Peterburg, while Chief Financial Officer Eyal Desheh resigned at the end of June, again with only an interim stand-in.

“People have lost faith in Teva not for what happened, but we don’t see where it’s going,” Eldad Tamir, head of the Tamir Fishman Investment House, said.

In addition to seeking partners, Teva is responding by speeding up plans to divest noncore assets, the sources said, with long-term decisions including a possible breakup into two companies, generics and specialty drugs, only likely to be discussed after it fills its leadership vacuum.

Morgan Stanley and Bank of America have been asked to find buyers for Teva’s women’s health business and European oncology and pain unit, respectively.

Industry players including U.S. generic drugmaker Mylan, German healthcare group Fresenius and India’s Intas Pharmaceuticals are all carrying out due diligence on the assets, which could be worth about $2 billion combined, the sources said.

A source familiar with the divestments said that Intas, which last year bought the generics business of Actavis in the United Kingdom and Ireland from Teva, is now bidding for specific assets within the women’s health unit, adding Teva is open to a breakup to speed up the sale.

This means the business could be sold in two or three chunks with its U.S. and international operations being chopped and some products, such as contraceptive drugs Plan B and Paragard being carved out and sold separately, the sources said.

The oncology business could also be broken up as industry players are mainly interested in pure cancer drugs while pain medicine, which is being offered as part of the same deal, is seen as less attractive, the sources said.

The prospect of a piecemeal deal has drawn interest from private equity funds including Advent and TPG, the sources said.

Fresenius, Mylan, Advent and TPG declined to comment, while Intas was not immediately available for comment.

Teva is also considering options for its respiratory treatments business as part of a review of its entire portfolio, the sources said.

It recently decided to part ways with Iceland-based Medis, a supplier of development work to third-party drugmakers, which one source said could fetch about $500 million.

Some banks have suggested a possible sale of PGT Healthcare, a consumer care products joint venture with Procter & Gamble, but Teva spokeswoman Bradley said this remains core.