TEVA Teva Pharmaceutical Industries Ltd

By Nina Trentmann 

Generic drug manufacturer Teva Pharmaceutical Industries Ltd. is searching for a new finance chief as high debt levels and the uncertain outcome of opioid litigation in the U.S. cloud the Israeli company's outlook.

Teva said Wednesday that Chief Financial Officer Michael McClellan will step down for personal reasons that require him to be close to his family.

Mr. McClellan, who was appointed to the top finance role in November 2017 after leading the finance division of the company's specialty medicines business, will remain in the CFO post until Teva announces third-quarter results, the company said.

Mr. McClellan's departure comes as Teva implements a turnaround plan to improve its balance sheet. The company on Wednesday reported a net loss of $689 million for the quarter ended June 30.

Jerusalem-based Teva has cut jobs and operating expenses as it faces price pressures in North America. That market, together with Western Europe, generates around 49% of sales, according to Teva's 2018 annual report.

The restructuring efforts are intended to reduce costs by $3 billion by year's end, out of an estimated cost base of $16.1 billion in 2017.

Ongoing opioid litigation and price-fixing investigations by the U.S. Justice Department could complicate matters for the new CFO, analysts said.

"It is a tough time for the company to make such an announcement, even though they are on track to hitting that target," said Soo Romanoff, an analyst at Morningstar Inc.

Teva Chief Executive Kåre Schultz has made cost-cutting a priority since he took office in 2017, and the successor in the finance seat is expected to help the CEO achieve the planned savings, Ms. Romanoff said.

"The CEO is recognized in the industry as being focused on costs," she said. "He needs someone close to the numbers who can execute his plans."

Potential legal costs could be a factor in the cost-cutting calculus. Since May 2014, about 1,500 complaints have been filed against Teva in U.S. state and federal courts in relation to opioid sales and distribution, according to the 2018 annual report. Most of the federal opioid cases have been consolidated into a multidistrict case. Court proceedings in that litigation are set to begin this fall in the U.S. District Court for the Northern District of Ohio.

Teva booked $646 million in costs for legal settlements in the quarter ended June 30, the majority related to opioid litigation. The Ohio litigation could cost the company $1 billion or more, according to Ms. Romanoff.

Teva reached an $85 million settlement with the state of Oklahoma in May.

Uncertainty about the outcome of the outstanding opioid cases and potential settlement costs have stoked concerns among investors, said Irina Koffler, an analyst at Mizuho Americas LLC.

The Justice Department's investigations into alleged price-fixing relate to the 2012 to 2016 fiscal years and the litigation could continue for years, the company said Wednesday.

A new CFO will have to deal with the financial implications of future court settlements while tackling the company's high debt load, analysts said. Teva had net debt of $27 billion at the end of June and the ratio between its net debt and earnings before interest, tax, depreciation and amortization, or Ebitda, stood at 5.8 times, according to S&P Capital IQ.

Teva's management is aiming for a ratio of less than 3 times within the next three to five years. The company's closest competitor, Mylan NV has a ratio of net debt to Ebitda of 3.7 times, according to S&P Capital IQ.

"The new CFO will need to tackle debt refinancing, delevering and efficiency targets while preserving sufficient capital to drive future growth," Ms. Koffler said. The company has about $2.5 billion in debt maturing in 2020, while $4.2 billion in debt comes due in 2021, according to S&P Capital IQ.

Teva's stock price has declined more than 56% since the beginning of the year. Shares were down 1% in midday trading Wednesday.

Teva is expected to search outside the company for a new CFO, said David Amsellem, managing director at Piper Jaffray. That person would have to be adept at managing complicated capital structures, he said.

-- Chris Wack contributed to this article.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

(END) Dow Jones Newswires

August 07, 2019 14:45 ET (18:45 GMT)

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