Teva Fails To Impress At Its Investor Meeting, Restructuring Awaits

Jeremy Levin has been in charge since May. As far as the company’s financial guidance, Teva said that earnings would be $4.85 to $5.15 per share with revenues coming in at $19.5 billion to $20.5 billion. Thomson Reuters has estimates of $5.36 EPS and $20.36 billion for 2012, followed by $5.09 EPS and $20.14 billion in revenues for 2013.

Levin will be targeting about $2 billion in annual cost reductions over the next five years. These are not just layoffs contributing to cost cutting. The company is also going to target its cost structure to accommodate several small-sized to mid-sized acquisitions rather than large acquisitions. Levin also said that he will consider the divestiture of certain non-core assets, which was part of an admission that the focus has been lost. Teva was said to have the ability to spend about $10 billion on business development over the next five years, which includes those mergers, partnerships, and other efforts.

Teva’s issue may be one of identity after years of growth. The generic business has expanded to include branded drugs, its geographies have expanded via acquisition, and its MS drug called Copaxone has not grown as much as some were hoping. The company’s efforts here remain in the public message that it can meet the needs of patients and employees while still rewarding shareholders.

The company maintains that it can still achieve revenue growth over the next five years despite patent issues facing it and the industry. With the revenue and earnings guidance being offered up, Wall Street is not exactly convinced. Things were getting bad enough at one point in the last year for shareholders that we wondered if Teva’s share price had discounted every penny out of its non-generic efforts.

As far as why Teva is a hard situation to trust right now, Levin had the pedigree coming in. He was one of the key figures behind Bristol-Myers Squibb (NYSE: BMY) growth as he was the Senior VP of Strategy, Alliances and Transactions at the drug giant. Here were his other credentials going back 20 years in the private sector:

• 2003-2007 Global Head of BD, Novartis Institutes of Biomedical Research
• 1998-2003 President & CEO, Physiome Sciences
• 1998-2000 Managing Director, Perseus Soros Ventures
• 1992-1998 Chairman, President & CEO, Cadus Pharm Corp
• 1988-1992 President and VP Business, Odyssey Biomedical and Genzyme acquisition license strategy.

Teva went as far as announcing just today that it and Xenon Pharmaceuticals Inc. have now entered into a collaborative development and exclusive worldwide license for XEN402, which is in clinical development for a variety of painful disorders.

So, here is why we remain cautious today… Teva shares are down 1.4% at $41.93 against a 52-week trading range of $37.40 to $46.65. The $36.4 billion market cap, but shares have been range bound and are down from north of $60 at the peak in early 2010. Levin is going to have to restructure Teva into a company which can regain its momentum. That may include divestitures, spin-off strategies, and even jettisoning some of its grandiose growth measures taken in the last decade.

JON C. OGG