Why Teva Pharmaceuticals Industries Just Lost $1.5 Billion In Market Value
What happened
After announcing the sudden departure of its CEO, shares ofTeva Pharmaceuticals(NYSE: TEVA),an Israeli-based manufacturer of generic and branded drugs,fell by more than 5% in early afternoon trading on Tuesday. The move has erased more than $1.5 billion from the company's market capitalization.
So what
Teva's board announced that Erez Vigodman will be leaving the company's corner office, effective immediately. The board has appointed Dr. Yitzhak Peterburg as the company's interim President and Chief Executive Officer.
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Dr. Peterburghas served asChairman of Teva's Board of Directors since 2015. The company also stated that it has initiated a search to look for a permanent CEO.
Traders were surprised by the news, leading to today's drop.
Now what
Teva's stock has been in freefall for more than a year now, and it is not hard to figure out why. The company's balance sheet is debt-heavy after it spent more than $40 billion to acquire Actavis, the generic drug unit of Allergan. Teva's also been dealing with the loss of patent protection on Copaxone, its blockbuster multiple sclerosis drug. Mix in accusations ofprice fixing and today's corner office change-out, and it is easy to understand why shares are trading at a ten year low.
Dr. Peterburg certainly has his work cut out for him to get Teva back on track. His first move was to try and reassure shareholders that the company's future still looks bright, stating:
He also stated that his near-term focus is to realize the cost synergies promised from the Actavis acquisition. For perspective, managementhad previously stated that it expected to wring out more than $1.4 billion in annual cost savings.
With shares trading for less than seven times forward earnings, it is clear that Wall Street has given up on Teva's stock. I for one do not like investing in falling knives, so I plan on staying far away from this troubled company for the foreseeablefuture.
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Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends Teva Pharmaceutical Industries. The Motley Fool has a disclosure policy.