Fitch Ratings has broken ranks with Moody's and S&P and downgraded its debt rating for Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) from "A-" to "BBB+", saying that the company's free cash flow in 2013-14 will be insufficient in to repay maturing debt, including $750 million due in March.
Fitch says that its forecast "stems from the confluence of previously-announced significant cash outflows for litigation, tax settlements, and accelerated restructuring activities and of branded and likely near-term generic competition to Copaxone." It says that the cost outlays for these expenses will exceed $3.5 billion in 2013-14.
Fitch warns that new oral treatments for multiple sclerosis are expected to continue to eat into Copaxone's market share in 2014, but that generic competition from as many as four firms in May 2014 poses a greater risk. "It is also possible that the launch of a generic Copaxone could be delayed beyond the May 2014 expiration of market exclusivity," it says, adding, "Even in this scenario it is unlikely that Teva will be able to adequately reduce debt before facing severe profit losses at some point soon thereafter".
As for Teva's streamlining plan, Fitch says, "Successful execution of the outlined R&D strategy could drive significant growth in the outer years of the rating horizon, in Fitch's view; but not in time to offset expected Copaxone losses in 2014-2016. Biosimilars and complex generics are key areas of growth which Teva in uniquely positioned to achieve. The company's JV with Proctor & Gamble should also provide an area of near-to-medium term growth, albeit relatively smaller compared to the firm as a whole." It also warns, "Material execution risk around achieving these objectives is heightened by the current lack of a permanent CEO."
Fitch estimates Teva's free cash flow in 2014 at $450-850 million, compared with $2.6 billion in 2012 and $1.9 billion in the 12 months through September 2013. On the other hand, it says that Teva is one of the world's largest pharmaceutical companies, and, as such, it benefits from a global presence, economies of scale, and diversity. It is upbeat on the generics drugs industry and says that Teva's "strategic objectives as appropriate and realistic, and capable of driving growth beginning in the 2016-2018 timeframe."
On the financial side, Fitch notes that Teva has $3 billion in an unsecured credit line due in 2017 and $1.15 billion in cash at the end of September. The credit line will fall after Teva repaid $1.1 billion in bonds that matured in November 2013. The company's upcoming debt repayment schedule are $800 million in 2014, $1.2 billion in 2015, $1.5 billion in 2016, $650 million in 2017, and $8.5 billion thereafter. "The firm's maturity schedule is well-laddered, though likely requiring some refinancing in 2014 to maintain adequate cash on hand," it says.
Published by Globes [online], Israel business news - www.globes-online.com - on December 12, 2013
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