Kim K Logan
13/03/2017
The funds that holds the Teva
Teva Pharmaceutical Industries Ltd. Ratings Affirmed, Outlook Still Negative; Management And Governance Score
Revised Overview
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Israel-based generic drug maker Teva Pharmaceutical Industries Ltd.continues to face a number of challenges, including threats to its Copaxone (a treatment for multiple sclerosis) business, continued generic pricing pressure, and risks to execution of its strategy as the company navigates changes to its management team.
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We continue to monitor whether the appointment of a new CEO and the concurrent business review bring any change in strategic direction or financial policy.
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We are revising our management and governance score to fair from satisfactory.
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At the same time, we are affirming our 'BBB' corporate credit rating on Teva. The outlook remains negative.
- The negative outlook reflects our expectations for slower deleveraging than in our previous forecast and risks to our new base case. We continue to forecast net adjusted leverage of around 4.0x by 2018.
Rating Action
On March 10, 2017, S&P Global Ratings affirmed its ratings on Teva Pharmaceutical Industries Ltd., including the 'BBB' corporate credit rating.
The outlook remains negative. At the same time, we revised our management and governance score on the company to fair from satisfactory.
Rationale
The revision of Teva's management and governance score to fair from satisfactory is based on our view that the company's strategic execution is more challenged given the loss of two key executives in the past three months. The management changes have occurred at the same time the company is striving to integrate the Allergan generics acquisition, achieve 2017 guidance, and manage through legal and regulatory hurdles. The company's ongoing strategic review also adds a degree of uncertainty to its plans for its generics and
specialty businesses.
Outlook
The negative outlook reflects our expectation that Teva will efficiently integrate the Allergan acquisition and achieve outlined synergies, allowing the company to reduce leverage to around 4.0x by the end of 2018. However, the negative outlook also reflects our view that there are significant risks to achieving this target, and the company has very limited capacity for debt-financed acquisitions at this time.
Downside scenario
We could lower the rating if we believe that the company will not steadily reduce leverage toward about 4.0x over the next two years. We believe this could occur as a result of operational difficulties, integration challenges, or significant debt-financed acquisitions beyond the $500 million-$1 billion per year that we currently anticipate.
Upside scenario
Assuming an efficient integration of Allergan's generic drug operations, realization of accelerated synergies, planned asset sales, and no further acceleration in generic price erosion, we believe Teva will steadily deleverage. Management has stated its target of reducing leverage to 3.5x by the end of 2017. If we gain increased confidence that the company can execute on its deleveraging plan, leading to leverage sustained under 4x, we could revise the outlook back to stable.
Primary Credit Analyst: Kim K Logan, New York
Secondary Contact: Arthur C Wong, Toronto
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