High Debt, Potential Litigation Costs Face New Teva CFO
2019年11月8日 - 6:37AM
Dow Jones News
By Nina Trentmann
Teva Pharmaceuticals Industries Ltd. appointed a new finance
chief who will be charged with managing the Israeli drug
manufacturer's high debt as it braces for potential costs
associated with opioid litigation in the U.S.
The Jerusalem-based company named Eli Kalif as executive vice
president and chief financial officer, effective Dec. 22. Mr. Kalif
succeeds Michael McClellan, the company's CFO since 2017, who is
stepping down for personal reasons, Teva said.
Mr. Kalif joins Teva from Flex Ltd., a U.S.-based technology
manufacturer that operates in 30 countries. Mr. Kalif had served as
Flex's senior vice president of finance since 2013. Before that, he
was Flex's vice president of finance for the company's Americas,
Europe and South America business.
The appointment comes as Teva works to turn around its business
following a series of loss-making quarters. The company on Thursday
reported a net loss that widened to $314 million in the third
quarter, up from a loss of $237 million in the prior-year
period.
Its profitability -- measured by gross margin under generally
accepted accounting principles -- fell to 42.9% in the past
quarter, down from 43.7% in the third quarter of 2018, which is off
the target of 50% or more that generic drug manufacturers usually
aim for, according to Soo Romanoff, a Morningstar Inc. analyst.
Teva has been cutting costs as it faces pricing pressure in
North America, which, together with Western Europe, generates about
49% of its sales, according to the company's 2018 annual report.
Its two-year restructuring effort is intended to bring down total
costs by $3 billion by the end of the year. The company had an
estimated cost base of $16.1 billion in 2017.
"They are trying to put the company in a position to pay down
some debt, but also to create a favorable debt-maturity schedule by
extending the maturities," said David Amsellem, a managing director
at investment bank Piper Jaffray Cos.
Teva had nearly $27 billion in debt in the third quarter,
compared with $28.7 billion in the second quarter, according to the
company, which repaid about $1.5 billion during the quarter.
Teva's ratio between net debt to earnings before interest,
depreciation, amortization and interest was 5.7 times in the third
quarter, according to data provider S&P Capital IQ. Mylan NV,
its closest competitor, had a ratio of 3.7 times.
Teva is aiming for a ratio of less than three times within the
next five years. About $2.5 billion of the company's debt is coming
due in 2020, followed by $4.2 billion maturing in 2021, according
to S&P Capital IQ.
"Managing the capital structure is incredibly important in the
context of Teva's opioid litigation and potential liabilities," Mr.
Amsellem said.
The company on Oct. 21 announced a settlement agreement with two
counties in Ohio, which will see Teva donate opioid treatment drugs
valued at $25 million, and a cash payment of $20 million. The
company also struck an agreement in principle with a group of
attorneys and defendants for a global settlement framework, under
which Teva would donate treatment medication worth $23 billion over
the next 10 years alongside $250 million in cash.
The company booked $468 million in legal costs in the third
quarter, the majority in relation to its opioid cases.
Mr. Kalif will have to enhance the company's financial
flexibility to manage costs arising from settlements as well as
potential costs stemming from a U.S. Justice Department
investigation into alleged price fixing, analysts said.
"The communication around these complex cases to employees and
the investor base is going to be key," said Matthew Todd, an
associate director at S&P Global Ratings.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
(END) Dow Jones Newswires
November 07, 2019 16:22 ET (21:22 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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