Teva Pharmaceutical CEO Kåre Schultz has gone to great lengths to shave off $3 billion in costs by instituting a major restructuring plan that has included slashing 14,000 jobs and shuttering manufacturing plants around the world. But that isn’t enough for influential debt-rating firm Moody’s—nor for Teva’s impatient investors.
Moody’s revised its outlook for Teva from “stable” to “negative” on Wednesday. It didn’t help that the firm's report came just one day after Rep. Elijah Cummings and Sen. Bernie Sanders accused Teva of improperly conspiring with other companies to withhold information during a generics price-fixing probe. Then there’s the ongoing opioid lawsuits filed by several U.S. cities and counties against Teva and other companies.
It was enough to push Teva’s shares down more than 10% on Wednesday to $6.30. The stock hasn’t traded at that low a price since 1999.
Moody’s noted that Teva has enough cash to cover the more than $2 billion of debt that will mature over the next two years, but that repaying what it owes “will consume a significant portion of the company's cash and cash flow over the next 18 months,” the firm said. “Teva will not generate sufficient cash flow to repay the approximately $4.2 billion of debt that matures in 2021.”
Furthermore, there’s a significant risk that any payments required of Teva related to the opioid legislation could divert cash that the company needs to repay its debt, Moody’s said. The company did put aside $646 million to cover opioid-related expenses, but that amount “represents mainly the current provision for the minimum potential for future liabilities for opioid-related cases. This amount will likely grow over time as more information becomes available,” Moody’s said.
The ongoing congressional probe is another distraction for Teva. It’s been going on for five years now, and Cummings and Sanders are miffed that none of the companies involved have turned over the documents they’re requesting. That’s delaying the probe and it “may have caused further harm to patients and healthcare providers by delaying the discovery of evidence about the companies' price-fixing," the lawmakers said in the letter they sent to Teva earlier this week.
In revising its outlook for Teva, Moody’s took into account other risks facing the company. For example, sales of the company’s blockbuster multiple sclerosis drug Copaxone continue to erode as generics flood the market.
Investors had been holding out hope that Teva’s new migraine drug Ajovy would pick up some of the slack, but that has yet to materialize. The drug, part of the new class of CGRP inhibitors, is facing competition from Eli Lilly’s Emgality and Amgen and Novartis’ Aimovig. Teva was aiming for a second approval in cluster headache, which might have given it a leg up on the competition, but it abandoned those plans in April.
That leaves Schultz with few options beyond cost-cutting. During the company’s second-quarter conference call last week, the CEO said Teva has slashed $2.7 billion in expenses so far but that it’s likely to keep cutting costs even after it hits its $3 billion goal. That will include “ongoing optimization of our manufacturing footprint,” he said during a conference call with analysts.
Teva may need to put into place incremental improvements over time that could involve “thousands of different activities and changes,” Shultz said. The company is engaged in “a sustainable improvement methodology,” he added, “and I believe that we'll be able to do that going forward.”
Investors, however, don’t seem as optimistic.