The shares of Teva Pharmaceutical Industry Ltd. tumbled on Thursday after the company cut its sales and earnings forecasts for the year amid greater competition in its generics business and for its flagship branded drug for multiple sclerosis Copaxone.
The financial results came a day after Teva’s new CEO, Kåre Schultz, 56, took the reins of company on Wednesday. He will be tasked with setting up the Israeli firm’s strategy, divesting assets, cutting debt and restoring investor confidence at the firm, which has seen its New York-traded shares dive more than 70 percent in past 12 months. The company has struggled to find strategic direction and its blockbuster Copaxone is witnessing competition from copycat drugs.
The shares plunged 14% in Tel Aviv and were trading 20% lower in New York at 10:15 pm in Tel Aviv, bringing the share decline in the past 12 months to 73% and the company’s market value to just $11.4 billion.
The drugmaker on Thursday reported a net profit of $530 million in the third quarter, compared to $348 million in the same period a year earlier. Revenues for the quarter rose 1% to $5.6 billion, the company said in a statement. The profit was below analyst estimates.
The company cut its revenues outlook for the year, to $22.2 billion-$22.3 billion, from a previous forcast of $22.8 billion-$23.2 billion, due to an earlier than expected launch of generic competition to Copaxone 40 milligram for multiple sclerosis.
The company also cut its adjusted earnings per share forecast for the year, saying it would be in the range of $3.77-$3.87, compared to a previous forecast of $4.30-$4.50. For the fourth quarter of 2017, Teva forecast adjusted earnings per share of $0.70-0.80.
Bank of Jerusalem brokerage had forecast Teva would post a year-on-year 1.6% rise in revenues to $5.7 billion for the third quarter of the year, and a net profit of some $1.1 billion. Citi forecast 3Q revenues at $5.46 billion and net profit of $1.15 billion for the quarter.
One of the new CEO’s first and key missions will be to oversee and implement Teva’s merger with Actavis Generics, a $40 billion merger which has turned out to be an expensive deal for the company in light of the drop in prices of generics drugs, due to increased competition and to the the US Food and Drug Administration implementing a policy of approving more generic versions of drugs.
Schultz will also have to deal with picking a direction for Teva — whether to focus on the production of generic drugs — a sector which has suffered from price cuts due to increased competition — or to develop its own branded drugs, like it did with Copaxone.
The FDA approved a generic version of Teva’s flagship Copaxone in the 40mg dosage last month, opening the door for copycat versions of its medication. And a UK court ruled in favor of a challenge to the patent of Copaxone. Teva had not expected competition for the 40mg version of the drug this year.
“We expect a continued roller coaster in Teva’s share price,” Saar Golan, an equity trader at the Bank of Jerusalem brokerage said by phone. “Some focus will be on the continued deterioration of generics prices in the US, but the market will also look to Teva’s new CEO for some long awaited vision.”
Teva said US revenues for its generics drugs were down 9% compared to the third quarter of 2016, mainly due to “challenging market dynamics” that included pricing declines resulting from customer consolidation into larger buying groups and accelerated FDA approvals for additional generic versions of competing off-patent medicines.
Global revenues of Copaxone in its 20mg and 40mg versions were $1.0 billion for the quarter, a decrease of 7% compared to the third quarter of 2016, Teva said.
Launched in 1996 by Teva as its first major brand-name drug, Copaxone is still the leading medication for multiple sclerosis patients.
The drug’s patents are now expiring and in 2015 competitors started marketing a generic version of this drug. While the classic dosage consists of 20mg to be injected daily, Teva had managed to stave off some of the competition by developing a 40mg, three-times-a-week injection of Copaxone, which most patients have now switched to.
In a call with analysts, Teva’s interim Chief Financial Officer Michael McClennan said that the company — which has seen its debt rating downgraded to just one notch above junk by rating agencies — will “have some important decisions to make in order to stay investment grade,” and will be evaluating all options with the new CEO.
“Currently we do not have a plan to raise equity, but these are some of the things we will be considering together with new management and the board as we move into the future,” he said. Raising equity would further dilute existing shareholders’ investments.
As of September 30, 2017, Teva’s debt was $34.7 billion, the company said Thursday.
“We need on the company’s ongoing efforts to strengthen operations, improve financial performance, reposition Teva operationally and financially,” Schultz said in the conference call with analysts Thursday. “I recognize the significant debt burden that Teva is currently under and it will be an absolute priority for me that we stabilize the company’s operating profit and cash flow in order to improve our financial profile.”