Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) shares flew almost 8% yesterday and continue to soar nearly 2% in pre-market trading today. After a bout of debt and difficulties, under new CEO Kare Schultz’s guiding hand, it is back to the drawing board for the Israeli pharma giant. In a welcomed leadership reset and organizational, structural revamp, investors are taking kindly to meaningful executive changes, which includes a new CFO in Teva town, Mike McClellan.
In addition, Teva’s new structuring is set to consolidate generic and branded segments under one umbrella with three regions managing the giant’s portfolio: North America, Europe, as well as Growth markets. The key executives on their way out are Head of Global R&D Michael Hayden, Head of Global Specialty Rob Koremans, and Head of Global Generics Dipankar Bhattarcharjee, with these three heads set to retire by the close of 2017. Schultz seeks to stabilize a biotech giant that has been shaken by rising generics pressures, the end of exclusivity for its multiple sclerosis drug Copaxone, and a hefty $35 billion in debt haunting the company after taking over Allergan’s generics firm Actavis in 2016.
BTIG analyst Tim Chiang commends Schultz’s move toward aligning, integrating, and pushing the company towards profitability, and as such, the analyst remains bullish on the rebounding biotech player.
In reaction to the corporate shakeup that has sent investor sentiment rising, the analyst maintains a Buy rating on TEVA stock with a $16 price target, which implies a close to 8% upside from where the stock is currently trading. (To watch Chiang’s track record, click here)
Chiang writes, “New CEO Kare Schultz is quickly making changes at the senior level which we think will lead to a leaner operating structure. Additional restructuring plans are scheduled to be announced in mid-December. We continue to see the new management team’s focus being on lowering the operating cost structure at the Co,” adding, “We remain positive TEVA shares and believe new CEO Kare Schultz will implement key changes to 1) lower operating costs, 2) refocus the Co’s key business segments to increase profitability, and 3) delever the balance sheet which has ~$34.7B of debt as of the end of 3Q17.”
Overall, “Teva is one of the largest global generic drug Co.’s, with a significant pipeline which should attract more attention as we head into 2018, we believe. While price erosion remains a headwind, we believe investor focus will turn to the Co.’s pipeline and how it can capitalize on complex generics / biosimilars which we believe will gain increased traction in the US over the next several years,” Chiang contends.
For 2018, the analyst angles for roughly $4.39 billion of adjusted SG&A expenses coupled with $1.53 billion of adjusted R&D costs for Teva and anticipates that by the middle of next month, further restructuring details will arise. For now, from the eyes of Chiang, Schultz’s main focus points to beefing up any opportunity to bring more cash flow to the table. Even as Copaxone sales fall roughly 40% year-over-year, the analyst predicts Teva can still achieve around $4.99 billion of operating profits.
Not everyone on Wall Street remains as convinced as Chiang that Teva’s success will be a sure thing, considering the Israeli pharma giant has a great deal to prove, and TipRanks analytics demonstrate TEVA as a Hold. Out of 19 analysts polled by TipRanks in the last 3 months, 3 are bullish on Teva stock, 12 remain sidelined, while 4 are bearish on the stock. With a return potential of nearly 2%, the stock’s consensus target price stands at $14.93.