Teva Pharmaceutical Industries Earns Investment-Grade Credit Rating

Credit rating agency S&P Global Ratings has upgraded Teva Pharmaceutical Industries' long-term credit rating from BB+ to BBB-, with a stable outlook. This upgrade marks a significant milestone for the Israeli drugmaker, moving it from a speculative-grade rating to investment-grade status, a level recognized by major institutional investors.

This follows similar upgrades from Moody's and Fitch Ratings earlier in the year, meaning Teva now holds an investment-grade rating from all three major credit rating agencies. This achievement is crucial as many large funds and financial institutions are prohibited from investing in debt rated below investment grade. The upgrade is expected to broaden Teva's investor base, improve its chances of inclusion in major bond indices, and potentially lead to better terms on future debt issuances.

The upgrade reflects Teva's substantial progress in reducing its debt burden, which stood at approximately $35.8 billion in late 2016 after its acquisition of Actavis Generics. As of June 2023, Teva's total debt has been reduced to about $16.6 billion, with net debt at $12.9 billion. This reduction was achieved through asset sales, halted acquisitions, dividend cancellations, cost-cutting measures, and prioritizing debt repayment.

S&P noted that Teva's adjusted debt-to-EBITDA ratio is currently around 4, with projections to decrease to approximately 3.6 by the end of 2026 and 3.3 in 2027. A sustained ratio below 3 could lead to a further upgrade to BBB. Beyond debt reduction, rating agencies are increasingly focusing on Teva's business performance, particularly the growth of its innovative drug portfolio. Key products like Austedo, Ajovy, and Uzedy are showing strong sales growth, contributing significantly to revenue and improving gross profit margins.

Teva is also developing a pipeline of new drugs, including a long-acting version of Olanzapine for schizophrenia, Ecopipam for Tourette syndrome, DARI for asthma, and Duvokitug for inflammatory bowel disease. These future products are expected to offset potential price pressures on existing drugs like Austedo and further diversify Teva's revenue streams, providing confidence in its long-term cash generation capabilities.

While the upgrade signifies a major turnaround, challenges remain. Teva's generic business faces weakness in some markets, and new drug approvals and market penetration are still subject to clinical trials and regulatory processes. However, the company's debt is no longer its primary risk, and its focus has shifted towards strategic investments in growth and innovation while managing its leverage.