Should Teva take a breakup cue from Big Pharma? Goldman analyst says yes
|New Teva CEO Erez Vigodman|
If Big Pharma should consider hiving off extraneous business units, then why not Big Generics? Goldman Sachs analyst Jami Rubin, an early champion of the pharma breakup, figures Teva Pharmaceutical Industries ($TEVA) could try it.
Threatened by the impending loss of exclusivity on its biggest seller, struggling with a controversial cost-cutting plan, and welcoming its fifth CEO since 2007, Teva is in need of help. Rubin, an outspoken Teva critic, enumerated the problems in a new note to investors. Its 2013 results show that Teva is increasingly dependent on Copaxone, with sales growth lagging on the generics side. That's obviously the wrong way round, given the company's inevitable need to grow without Copaxone's help; copycat versions could hit the market as soon as May
Plus, the company's $2 billion cost-cutting program will send only $500 million or so to the bottom line, she noted.
So, Rubin prescribed "bold steps" for incoming CEO Erez Vigodman "to become more positive on shares." And she was ready with a few options: More aggressive cost-cutting, which, given the politics of job cuts in its home country of Israel, could be tricky. Increased share buybacks. M&A
Or, of course, "simplification of Teva's business model (i.e., a breakup)."
When Rubin talks breakup, investors listen. She urged Pfizer ($PFE) CEO Ian Read to not only divest its animal health and nutrition business, but sell off generics and consumer healthcare. Or, better yet, just split the company into several pieces. With nutritionals sold to Nestlé and Zoetis spun off, Read has now divided up Pfizer's business into three units with separate financials, as a way to give investors a look at how those businesses might perform on their own.
Rubin also agitated for a Johnson & Johnson ($JNJ) breakup, and possibly still is; when CEO Alex Gorsky pronounced himself not interested, she recommended selling J&J shares. She's all for Merck & Co.'s ($MRK) current strategic review. And Novartis ($NVS) has come along for the ride with a consider-all-options look at its smaller units
Teva is certainly in need of some dramatic action. But its board might not be keen on a breakup. At least not now, with the group stacked deep with old-timers nostalgic for Teva's good old days. The company has promised to reduce the size of the board and bring on some directors with actual experience on the global pharma stage. Rubin's radical idea might gain more traction then, particularly if cost cuts, buyback and M&A don't deliver.
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