Kare Schultz buys time for Teva and himself

Kare Schultz photo: PR
Kare Schultz photo: PR

The Teva CEO has written off 2018 and 2019 and does not see recovery kicking in until 2020.

Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) CEO Kare Schultz told AP that he sees a "two-year turnaround timeline" and "a clear move upward" in 2020.

So at a stroke Schultz has written off 2018 and 2019, buying himself time to rebuild Teva, though not necessarily doing Teva's stock any favors. Some investors like US asset management giant Capital Research, which has increased its stake in Teva to 12%, clearly take a sanguine longer term view but for other investors 2020 will seem a long way away, especially with dividend payments suspended until further notice, and no guarantees that Teva will eventually recover. Teva's share price has fallen 7% since the fourth quarter results were announced last Thursday with the strong declines on Wall Street over the past week exacerbating the situation.

This is not to suggest that Schultz, 100 days into his new job, has put his own interests before Teva's by writing off the next two years to take the pressure off himself. Time may be the best healer, (although Teva would argue that its products do a better job) but the Dane has not been sitting on his hands since arriving in Israel on November 1.

Schultz's prescription for recovery has veered towards amputation rather than pharmaceutical treatment, with 14,000 layoffs worldwide, 25% of the company's workforce, including 1,750 in Israel. He has reached agreement with Israel's unions and politicians who have twisted his arm over the massive tax breaks Teva receives in Israel.

Schultz has also resisted the temptation to start blaming his predecessors and has simply got on with the job of dragging Teva out of the mire. He has let the figures speak for themselves. Despite the $40 billion acquisition of Allergan's generic division Actavis, Teva's revenue has not grown, mainly, as last week's $17.1 billion goodwill impairment write down demonstrated, because generic prices in the US have fallen sharply.

Furthermore, much of the $42 billion in revenue since 2002 from Teva's blockbuster multiple sclerosis treatment Copaxone has been squandered on over-priced and ineffective acquisitions and found its way into the pockets of the senior executives and directors that have driven the company to the brink of ruin.

Meanwhile the company has been saddled with a debt of $34 billion, reduced by the sale of various assets to $32.5 billion at the end of 2017. This debt must now be serviced by shrinking revenue - Teva sees revenue of $18.3 billion to $18.8 billion in 2018 compared with $22.4 billion in 2017. The $4 billion fall in revenue will stem from ongoing falls in generic prices and the generic competition now faced by Copaxone - the drug's revenue fell 25% in the fourth quarter alone following the introduction of new generic competition from Mylan to the 40mg dosage version.

Will Schultz get Teva back on track by 2020? Time will tell but investors seem to be betting on him. Despite the stock's volatility, the company's share price is almost double what it was when the Dane took over at the start of November and the shares hit a low point after the third quarter 2017 results.

Published by Globes [online], Israel business news - www.globes-online.com - on February 13, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Kare Schultz photo: PR
Kare Schultz photo: PR
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