Can Kare Schultz Save Teva Pharmaceutical Industries Ltd (ADR) (TEVA)?

Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is losing value after the company posted disappointing third quarter results and issued a lower-than-expected forecast. Teva’s third quarter revenue missed the estimates by $10 million. The company is under pressure amid the loss of exclusivity for Copaxone. The specialty segment of Teva Pharmaceutical did show signs of strength in the third quarter. Revenue of the segment increased by 6%, boosted by respiratory and oncology drugs. However, the company got a major blow due to the loss of exclusivity for Azilect.

Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is also facing growth obstacles because of pricing wars. Its competitor Mylan is cutting the prices of its generic drugs. If Teva tried to stay competitive and cuts its prices, it will lose even more money. Margins are going down as well. Gross margin in the third quarter was 47%, down from 50% in the year earlier period. EBITDA margin was 29%, compared to 35% reported the third quarter of 2016.

The company’s debt is also increasing. Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) now expects to slash its debt by $3.5 billion-$4 billion in 2017, as compared to the previous guidance of $5 billion. Even if the company succeeds in paying off $3.5 billion in debt, another $2 billion of debt is set to mature in 2018.

Analysts expect that the generic versions of Teva’s drugs like Viagra, Viread and Reyataz will rake in impressive sales in the last quarter of this year. But these drugs cannot bring the company out of its current crisis. Analysts are also losing hope on Teva’s new product launches after the company’s management clearly said on the earnings call that the revenue from the new product launches is expected to be weak this year. Teva Pharmaceutical now expects to earn $400 million of revenue from new product launches in 2017, less than the $500 million projected earlier.

Pharmaceutical giant Allergan, which has a 10% stake in Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), recently announced that it would start selling its stake in the company. The announcement comes after Kare Schultz took control of Teva Pharmaceutical as a new CEO. His predecessor had to go amid mounting pressure following Teva’s failure to launch new products and reduce debt. Schultz has a herculean task ahead to take the company out of the crisis. In the third quarter earnings call, the new CEO said that reducing Teva’s debt will be his “absolute priority”.

Teva Pharmaceutical has already started taking big steps to generate cash and get rid of businesses which have become baggage to their profitabilty. The company recently sold its Paragard Intrauterine Device (IUD) business to CooperSurgical for $1.1 billion. Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) has also completed the selloff of its sale of emergency contraception brands to Foundation Consumer Healthcare for $675 million.