Huge Debt Burden Hinders Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), Mylan N.V. (NASDAQ:MYL) M&A Plans

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Teva Pharmaceutical Industries Ltd

Oppenheimer & Co analyst, Derek Archila, does not expect Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) and Mylan N.V. (NASDAQ:MYL) to carry out major mergers and acquisitions in the near future.  The sentiments come at a time when the two companies are grappling with huge debt loads on the back of stiff competition in the drug business.

Debt Loads

Teva debt load soared to $35.1 billion in the quarter ended June 30 up from $34.6 billion as of the end of March. Mylan which is yet to report its second quarter earnings had a total debt of $14.96 billion as of the end of March.

A Mylan representative has already affirmed Archila sentiments by reiterating that the company’s M&A strategy has not yet changed.  However, the company’s Chief Financial Officer, Kenneth Parks, said the company was open to doing smaller deals as they continue to consolidate previous large acquisitions led by Abbott EPD and Meda.

Teva is not expected to carry out a major acquisition especially after slashing its full year guidance. The giant generic drug company has also slashed its dividend by 75%, owing to weaker U.S market. Chief Executive officer, Yitzhak Peterburg has already warned that the company faces accelerated price erosion and lower volume in the U.S generic business.

Cost Reductions

Cost reductions appear to have taken precedence at Teva as the management continues to explore ways of maximizing value. The Israeli drug maker is actively pursuing divestiture opportunities while exploring other ways of strengthening the balance sheet.

Fitch Ratings has already downgraded Teva’s issuer default rating to ‘BBB-‘ from ‘BBB’ on concerns that the company is facing significant operational stress. The massive debt could also plunge the company into a financial meltdown.

Consolidation in the industry is expected to gain momentum even as Mylan and Teva take a back seat.   Indian Generic manufacturers are reportedly exploring ways of entering the U.S market a move that could see them target a number of companies. Some potential acquisition targets include Impax Laboratories Inc. (NASDAQ:IPXL) and Teligent Inc. (NASDAQ:TLGT).

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