That was fast: Days after launching a review, Teva's eyeing a branded generics sale or spinoff

Teva
Teva's interim CEO said Monday that the company would "leave no stone unturned" during its newly launched strategic review.

Teva’s strategic review launched only last week, but the company is reportedly already weighing asset sales.

The company is considering a sale of its branded generics business, Bloomberg’s sources say. That’s a deal that could fetch several billion dollars, which Teva could use to cut down its heavy debt load.

The Israeli drugmaker may also consider spinning off the unit—or go in a different direction altogether, the sources said. Other non-core assets, such as Teva’s active drug ingredient business, could potentially go on the block as well.

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Interim CEO Yitzhak Peterburg announced the strategic review last week, alongside the news of CEO Erez Vigodman’s sudden departure. While the company hasn’t specifically mentioned making any cast-offs, some of Peterburg’s language on the Q4 conference call Monday raised analysts’ eyebrows.

“We will leave no stone unturned,” he said, adding that “we are here to fix what is not working.” Goldman Sachs analyst Jami Rubin wrote to clients later that day that, based on those comments, “[W]e believe the company might consider asset sales.”

Since the review announcement, some analysts—including RBC Capital Markets’ Randall Stanicky—have questioned the timing, wondering whether embarking on the process now would hamper the company’s CEO search.

But Teva's new chairman and Celgene vet Sol Barer made clear on the call that the hiring process—not the strategy analysis—was his highest priority. “I am personally involved, I am personally leading this, and I am committed to bringing the absolute best person from anywhere to head Teva,” he said.

Of course, Teva’s new CEO will have a say-so about the company's direction, including any sales and spinoffs. That's particularly true of the generics-specialty split that analysts are clamoring for.

“This is part of a more in-depth strategic view in terms of what will be best to unlock value for shareholders, and that’s something that will be done by the incoming CEO to a significant extent,” Barer said.

But Teva does have a mountain of debt to consider when making its plans, thanks to last year’s much-maligned $40.5 billion acquisition of Allergan’s generics unit. Its current debt-to-earnings ratio stands at about 4.9x, a figure Teva says it’s committed to bringing below 3.5x.

If the company wants to do that while keeping its dividend intact, though, it doesn’t have “a lot of wiggle room,” Jefferies analyst David Steinberg wrote Tuesday in a research note. “A hard choice could be avoided” if Teva can wring cost savings out of the Allergan integration and cut additional costs, as Peterburg said the company would be willing to do to preserve its 2017 guidance.

The timing of the potential arrival of a generic to multiple sclerosis blockbuster Copaxone—which recently had four patents tossed out—remains “the wildcard” though, Steinberg said.

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