Teva Seeks New CFO As It Faces High Debt Levels, Opioid Litigation -- Update
August 07 2019 - 3:00PM
Dow Jones News
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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