Teva forecasts higher margins and falling debt as it completes a two-year restructuring that cut costs by more than $3 billion, sending shares of the Israeli drugmaker up more than 9% after its fourth quarter earnings.
Investors shrugged off concerns about ongoing litigation over the opioid crisis the company is trying to address and for which it has set aside more than $1.2 billion to meet possible legal liabilities – a figure which could increase further as negotiations continue.
Kåre Schultz, the chief executive of Teva who joined to lead the turnaround, said shareholders were hearing the group was now delivering on its promises.
“If you look at the history of Teva, there were a lot of profit warnings before I arrived. People are slowly getting used to the fact that we are executing the plans we have made and giving conservative and realistic advice” , he told the Financial Times.
In the fourth quarter, Teva reported revenue of $4.5 billion and adjusted earnings per share of 62 cents, slightly above expectations. Net income was $110 million, compared with a loss of $2.9 billion in the same period a year earlier. The shares rose 9% to $13.44.
Ami Fadia, an analyst at SVB Leerink, said the quarter and the outlook reflected “sound fundamentals”. Investors were encouraged by forecasts of margin growth from 24.5% in 2019 to 28% in 2023, and net debt reduction of more than $9 billion last year, it said. -she adds.
“The commentary suggested that they believe operating margins can continue to improve over the next few years. With a fairly stable base in terms of revenue, they can reduce their leverage over time,” said she declared.
Teva agreed to a framework for a $48 billion opioid settlement with a panel of four state attorneys general in October, alongside Johnson & Johnson and three drug distributors. The company’s main contribution would be $23 billion in drugs to treat people with opioid use disorders, valued at wholesale price and spread over 10 years.
The first landmark lawsuit in Ohio’s opioid litigation was settled to give attorneys general time to persuade other states, counties and cities pursuing the opioid crisis to sign on to the framework. The next trial in New York is expected to begin in mid-March.
Schultz said he was “cautiously optimistic” that a comprehensive settlement could be achieved by then. “A firm settlement is best for the American public and best for people with addictions,” he said.
As the coronavirus outbreak affects the production of drugs and active pharmaceutical ingredients in China, Schultz said Teva is working to ensure it has raw material substitutes.
“We have reasonable safety stocks. We see no impact on our operations at this time,” he said. “It would be several months before we saw an impact.”
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