Teva CEO $2.8b down second day on the job

About 48 hours into his new job as chief executive of Teva Pharmaceutical Industries Ltd, Kare Schultz is already US$2.8 billion in the hole.

Shareholders shaved that much off the company’s market value after the world’s largest maker of copycat drugs failed to dispel worries that the worst may not be over. Schultz, 56, tried. The Danish pharma veteran told investors on Thursday that it was an “absolute priority” to bolster profits and cash flow.

“Kare faces a much more daunting challenge than I had,” said Jeremy Levin, the South African who ran Teva briefly until he fell out of favour with the board in October 2013 over how to restructure what was then Israel’s crown jewel. Teva’s woes snowballed following his exit, prompting the drugmaker to once again go in search of an outsider. “His success in bringing the company to its rightful position depends critically on complete support from the board,” Levin said.

Once among the world’s 20 biggest drugmakers, Teva has been in a rapid decline. On Thursday, it slashed its 2017 profit forecast for a third time as a key competitor began selling a cheaper version of its bestselling drug Copaxone, while its generic drugs faced intensifying competition and declining prices in the US, their largest market.

Investors recoiled after the company also pared its dividend, signaled it may sell new shares, and reduced the goal for paying down some of its $34.7 billion in debt this year. The stock dropped to its lowest in 17 years in New York.

“We need to build on the company’s ongoing efforts to strengthen operations, improve financial performance, and re-position Teva operationally and financially,” Schultz told investors on a conference call. The former head of Denmark’s H. Lundbeck A/S was picked by Teva’s board in September following a seven-month search. His appointment, the first of a non-Jewish person to lead the company, marks a departure in the 116-year history of Teva.

Even before his arrival, Teva had been shedding assets, closing factories and firing employees following an ill-timed $40.5-billion bet on the generics industry. The acquisition last year of Allergan Plc’s copycat drugs business left the company with debts that are almost three times its $11.4 billion in market value.

In September, the company amended its loan covenants to help meet its debt obligations.

Shares of Teva plummeted 20% in New York to close at their lowest since May 2000, extending this year’s rout to 69%.

The company’s bonds also fell to the lowest in months, while credit default swaps insuring Teva’s debt against losses soared to the highest on record. An increase signals deterioration in perceptions of credit quality.

Feeding into those concerns were Teva’s plans to cut expected debt repayments this year by as much as $4 billion, down from an earlier projection of $5 billion. The company said was this due in part to delays in receiving the proceeds of asset sales. Teva agreed earlier this year to sell its global women’s health business for $2.5 billion.

Teva is also in talks to divest its European cancer and pain treatment divisions, which could be valued at about $1 billion. The remaining transactions are expected to close this year and in 2018.

Teva’s new managers will consider selling more equity, said interim chief financial officer Michael McClellan, signalling shareholders’ investments could be further diluted.

The drugmaker also slashed its dividend for the third quarter to 8.5 cents a share from 34 cents a year earlier.