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Teva shares tumble amid political battle, doubt from Moody's

Anjalee Khemlani
Senior Reporter
A man walks past the logo of Teva Pharmaceutical Industries at their plant in Jerusalem December 14, 2017. REUTERS/Ammar Awad

Teva Pharmaceuticals (TEVA) was hit with two pieces of bad news on Wednesday. First, Moody’s put a negative outlook on the company’s credit rating. Second, two U.S. lawmakers accused the company of obstructing their probe into price-fixing allegations.

Moody’s has been monitoring the potential impact from ongoing opioid litigation.

“Based on Moody's projections for free cash flow, the rating agency believes that Teva has sufficient liquidity to repay 2020 maturities,” Moody’s said in a statement.

“However, the debt maturities will consume a significant portion of the company's cash and cash flow over the next 18 months. Teva will not generate sufficient cash flow to repay the approximately $4.2 billion of debt that matures in 2021. Failure to refinance these maturities well in advance could further pressure Teva's ratings. Teva's exposure to opioid litigation remains a key uncertainty, posing risk to its ability to refinance at attractive interest rates.”

Morris Borenstein, Vice President of Moody’s corporate finance group, said the guidance came from a combination of watching Teva’s second quarter earnings, as well as its $85 million opioid lawsuit settlement with Oklahoma in June.

While Teva still has $600 million on hand for future outlays, there is too much uncertainty of future potential settlements or resolutions of other lawsuits.

Other companies face the same risk from opioid lawsuits, Borenstein said, but their financial health plays a role.

Johnson & Johnson, for example, has been able to weather the storm due to their diverse portfolio.

“It’s one thing to say who is the most exposed, it’s another thing to say who has the greatest financial flexibility,” Borenstein said. “Johnson & Johnson generates significant cashflow. So in Teva’s case, it’s a much more acute pressure point.”

Sanders and Cummings call them out

On Wednesday, Sen. Bernie Sanders (D-VT) and Rep. Elijah Cummings (D-MD) called out the company, along with generic drug-makers Mylan and Heritage, for failing to comply with requests for documents.

The probe was first opened by the two in 2014 against 14 companies.

In letters to the three companies, Sanders and Cummings referenced an email that recently surfaced among the three companies’ executives that showed a collaborative effort to thwart the probe.

“(Counsel to Heritage) wrote that ‘the consensus at this point is that the responses will be ‘polite f-u’ letters,’” Sanders and Cummings wrote to all three.

“The email stated that the companies were planning ‘to schedule a conference call to coordinate the response and make sure everyone is on the same page.’”

The lawmakers repeated their request for documents from 2014, giving the companies until August 28 to comply.

Teva’s stock dropped 8% on Wednesday, and fell another 4% early Thursday.

Anjalee Khemlani is a reporter at Yahoo Finance. Follow her on Twitter: @AnjKhem

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