Teva's New CEO Re-Shuffles Senior Management, Stock Up 7%

Teva Pharmaceutical Industries Limited’s (NYSE:TEVA) new chief executive officer, Kare Schultz announced a new organizational and leadership structure to save costs and increase productivity. The organizational changes that include the departure of heads of three divisions will be effective immediately.

Shares of Teva rose 7.6% on Monday. However, shares have slumped 59.6% so far this year compared with the industry’s decline of 30.3%.

The Israeli drugmaker will no longer have two separate global groups for its two businesses – generics and specialty medicines. Instead, Teva will now operate through three regions —North America, Europe and Growth Markets — which will include generics, specialty, and over-the-counter (OTC) medicines.

The Generic R&D and Specialty R&D organizations will be combined into one consolidated Global R&D unit. It will be headed by Dr. Hafrun Fridriksdottir, who was until now serving as President of Global Generics R&D. A Marketing & Portfolio function has been formed that will take care of the interface between regions, R&D and operations.

However, Schultz, who joined Teva on Nov 1, made no mention of the workforce reductions, rumors of which have been doing the rounds lately. Last week, an Israeli newspaper published a report, which stated that Teva will cut its U.S. workforce by “tens of percents” and its Israeli workforce by 20-25%. However, the company did say that it is working on a detailed restructuring plan, details of which will be shared next month.

The Israeli newspaper report also said its current head of R&D and chief scientific officer, Michael Hayden will be removed. In the latest press release, Teva confirmed the rumor stating that Hayden will retire at the end of this year along with Dr. Rob Koremans and Dipankar Bhattacharjee, head of its Specialty Medicines and Generic Medicine groups, respectively. Teva also announced some top leadership changes including Michael McClellan as executive vice president and chief financial officer, effective immediately.

Teva is facing significant challenges in the form of generic competition for its largest branded drug - Copaxone, new competition for branded products, pricing erosion in the U.S. generics business, lower-than-expected contribution from new generic launches and a massive debt load.

The U.S. generics industry is facing significant competitive and pricing pressure, which affects the company’s top-line performance. An increase in FDA generic drug approvals and ongoing customer consolidation are resulting in additional competitive pressure in the industry. The challenges in the U.S. generics market are expected to continue through the rest of this year and probably in the next.

Teva’s blockbuster multiple sclerosis drug, Copaxone’s sales have been declining for quite some time now. Last month, in a major blow to Teva, Mylan (NASDAQ:MYL) launched (at-risk) its generic version of the 40 mg formulation, much earlier than expected. Meanwhile, Glatopa, a generic version of Copaxone 20 mg, is marketed by Momenta and Sandoz, Novartis’ (NYSE:NVS) generic arm, since 2015 while Mylan launched its version of the 20 mg formulation last month. With the entry of the generic version of the 40 mg formulation and the entry of a second generic version of the 20 mg formulation, Copaxone sales are expected to erode rapidly.

Additionally, the company’s debt burden accrued as a result of the $40.5 billion acquisition of Allergan’s (NYSE:AGN) generic unit, Allergan Generics in 2016. With nearly $35 billion in debt, the company’s borrowing costs have increased significantly, which is hurting profits.

In order to combat these challenges, Teva has divested some non-core assets to cut its significant debt load. It remains to see if the latest corporate shake-up, rumored layoffs and divestures are enough to revive the company’s fortunes during this challenging period, especially as it faces erosion of its largest product, Copaxone.

Teva carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>