Teva Pharmaceutical’s bonds traded dramatically wider on Tuesday, in a sell-off triggered by the resignation of its CEO and uncertainty over its strategy.
The Israeli company’s July 2021 bonds were 16bp wider on the day, according to MarketAxess, while its October 2026s widened by 12bp and July 2023s by 11bp.
The firm’s Chairman, Yitzhak Peterburg, is taking over as interim CEO after Erez Vigodman resigned from the post Monday, following a dramatic plunge in the company’s share price.
A string of costly acquisitions has led to calls for management changes including a possible split of the business into separate generic and branded medicine units - a worrying prospect for bondholders.
“I’m not sure the specialty business would be big enough to stand on its own, and I don’t really see the advantage of splitting it up,” said Carol Levenson, director of research at Gimme Credit.
Splitting the company in two would reverse its recent strategy of becoming a unique hybrid with both generic and specialty drugs businesses, she said.
Another investor said that while the company still had a high-grade credit rating, the uncertainty around its outlook had scared bondholders.
“Overall you don’t think they’re going to lose their IG ratings, but in the pharma space guys are always a bit more cautious,” said a buyside trader.
Teva is rated Baa2/BBB/BBB, just two notches above junk.
The company has nearly US$36bn in debt outstanding, following a buying spree including the acquisition of Actavis for US$40.5bn in 2016.
“There is also the possibility that a new CEO could decide not to honor management’s promise to make leverage reduction a top priority,” said Levenson.
Last month, Teva forecast revenues and profits well below analysts’ expectations, prompting calls from equity investors for a restructuring.
Teva’s New York-listed shares also tumbled last week after a US court found its patents for Copaxone - which accounted for almost a fifth of its revenue last year - to be invalid.
Analysts are now concerned the drug could face competition from generics, in a sector already facing upheaval under Donald Trump’s presidency.
“They’ve got some difficulties in the generics space, and the impact of the Trump administration is also a big unknown,” said the buyside trader.