Can Teva Pharmaceutical Industries Ltd (ADR) (TEVA) Divest Its Way Out of Debt? This Analyst Doesn’t Believe So

Jason Kolbert: Rising generics rivalry coupled with price erosion do not bode positively for TEVA.


Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) investors got a much-needed confidence boost today once buzz circulated from the weekend from Globes that billionaire Len Blavatnik is eyeing a considerable position in the troubled Israeli pharma giant. In reaction, shares have shot up almost 9% today in trading.

Maxim analyst Jason Kolbert approaches the debt-shackled company from a less thrilled stance, sidelined on the fierce competitive generics pressure nipping at the biotech player’s dragging heels as well as a cautious eyebrow raised on the risk of price erosion. Amid these two rising concerns, the analyst points a finger for the culprit that led the TEVA team to lower its guide for the year in its rocky third quarter print last week.

As such, the analyst maintains a Hold rating on TEVA stock without listing a price target. (To watch Kolbert’s track record, click here)

For the third quarter, TEVA’s top line revenue may have met the Street’s expectations, they fell sequentially from $5.7 billion in the second quarter to $5.6 billion in the third quarter, including the $3.0 billion from the company’s generics segment and $2.0 billion from specialty products. Whereas Copaxone sales yielded $1 billion in the second quarter, sales only hit $0.9 billion in the third quarter for Teva. Meanwhile, loftier than anticipated operated expenses of $4.7 billion compared to the $4.0 billion predicted resulted in a non-GAAP EPS of $1.00, just shy of expectations calling for $1.04. By the close of the third quarter, Teva may have ended with $700 million in cash, but keep in mind- the company is facing a massive $34.7 billion in debt.

“Lower margins on US sales impacted Teva’s bottom line, reflected in decreased generic profitability of 20.6% in 3Q17 vs 30.1% in 3Q16. In particular, US generic sales were down 9% YoY; this stems from accelerated FDA approval for competing generics. Sales of Copaxone declined ~4% sequentially due to US price erosion. However, the entry of a generic competitor in October is expected to have a more pronounced impact on sales going forward.”

Kolbert asks, “Can Teva Divest its Way Out of Debt?” asserting that while the odds do not favor Teva, this is the key game plan moving forward: “We don’t think so but divestiture of non-core assets remains a major strategy for management to address the debt. The recent sale of the Paragard franchise generated $1.1B for Teva and management seeks to generate further capital through intended divestiture of Plan-B Emergency Contraceptive.”

Overall, Kolbert is treading cautiously when it comes to this biotech stock, contending: “Teva’s generic business faces intense competition/price erosion which, when coupled with the reality of generic Copaxone and a lower than expected contribution from new product launches keeps Teva in a tough position.”

The word of the Street echoes the analyst’s choice to hedge his bets on the troubled Israeli pharma giant, considering TipRanks analytics exhibit TEVA as a Hold. Out of 20 analysts polled by TipRanks in the last 3 months, 3 are bullish on Teva stock, 14 remain sidelined, and 3 are bearish on the stock. With a return potential of 39%, the stock’s consensus target price stands at $17.18.