Teva’s Cloudy Future; CEO Search, Growing Competition are Among the Drug Maker’s Challenges
January 12, 2014 Leave a comment
Teva’s Cloudy Future
CEO Search, Growing Competition are Among the Drug Maker’s Challenges
HELEN THOMAS
Jan. 7, 2014 5:45 a.m. ET
If the darkest hour is just before dawn, Teva Pharmaceutical TEVA.TV +1.14% investors may be comforted at the lack of visibility around the Israeli generic-drugs maker. Enlightenment, however, still looks some way off.Teva needs a new chief executive after Jeremy Levin left last October following a falling out with the board. The company faces considerable uncertainty elsewhere, too. Its branded multiple sclerosis drug, Copaxone, accounts for about a fifth of Teva’s sales but, due to a very low tax rate, as much as 60% of profits. It could face generic competition later this year.
Whether or not competition emerges is crucial, forcing Teva to put out two sets of guidance for 2014. But, assuming Copaxone faces at least two competitors, Teva thinks 72% of patients could stick with its daily drug or switch to its as-yet-unapproved thrice-weekly formulation, according to Sanford C. Bernstein Research. That looks like a pretty aggressive assumption.
Meanwhile, the business of making standard generics—about half of Teva’s sales—is fiercely competitive and lower margin. And Teva has yet to convince investors that it can find novel formulations of established treatments, a twist on its generic-drug pedigree.
It isn’t all bad news. Teva last year unveiled plans to save $2 billion in costs by the end of 2017, equivalent to about half of 2012’s operating profit. Past deals weren’t properly integrated: Teva’s operating margins in generics lag behind peers by about four percentage points, argues Barclays. BARC.LN +0.86% And while Teva’s pipeline doesn’t contain any obvious blockbusters, Citigroup C +1.40% argues its respiratory drugs in development could generate $550 million in sales by 2018. European approval of an oral MS drug is another possible fillip.
Board member Erez Vigodman, the boss of Israeli agrochemicals company Makhteshim Agan, is among those in line for the CEO opening. His reputation for turning around companies could provide comfort on Teva’s restructuring prospects. But Mr. Vigodman’s lack of pharmaceutical expertise might not soothe nerves about growth prospects, or the company’s ability to deliver on its pipeline.
Teva is cheap: The stock trades at about eight times forecast earnings, well below generics peers at 12 to 13 times, which themselves trade well shy of the pharmaceuticals sector. If Teva’s cost cutting goes according to plan, that discount shouldn’t widen much. Beyond that, it still looks like a stab in the dark.
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