Shares in Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) fell 6% in morning trading on the TASE to NIS 198.50 in it's largest one-day drop since October 12, 2008, as the share opened with a negative arbitrage gap. Teva fell 8.5% on Nasdaq on Friday to $49.38, after the US Food and Drug Administration (FDA) granted approval for generic versions of deep vein thrombosis treatment Lovenox, made by Sanofi Aventis SA (NYSE: SNY; Euronext: SNA), to Momenta Pharmaceuticals Inc. (Nasdaq: MNTA) and Sandoz.
FDA approval for generic Lovenox apparently spooked Teva investors, who feared similar action against Teva's multiple sclerosis drug, Copaxone.
Conversely, investment houses are reacting to the plunge in Teva's share as a buy opportunity.
Merrill Lynch said that the Copaxone concerns appeared overdone, and reiterated its "Buy" recommendation, but cut the target price to $68 from $75. The new target price is a 38% premium on Friday's closing price.
"We are surprised by the magnitude of the sell-off as this event has long been expected, and we note that our model does assume generic competition in 2014 (worst case is still 2011). The analysts also said that the valuation and sentiment suggest that investors had already been expecting some combination of branded and generic competition to Copaxone in the coming years, and that legal hurdles remain. "While we are not saying that Copaxone risk is not important to consider, we are suggesting that we believe the concerns are overdone."
JPMorgan gives Teva an "Overweight" recommendation with a target price of $54. It said that the FDA approval of generic Lovenox was "well anticipated" and that the "potential for generic Lovenox competition has been a matter of 'when' not if." It added that the "approval does confirm the FDA’s willingness to approve generic versions of complex molecules. However, each of these situations is unique and we would point out that it was a long, multi-year road for generic Lovenox. We do not expect generic competition for Copaxone through 2015 and would note that the potential approval for a low-injection volume version of the product could further reduce generic risk to the franchise." It says that Teva’s long-term $31 billion 2015 top line target assumes only $2 billion of Copaxone sales by that time.
UBS and Barclays Capital concur with their counterparts. UBS reiterated its "Buy" recommendation for Teva and a target price of $69. It notes that Teva also has filed an application for generic Lovenox with the FDA, "but that is not the issue"… Teva fell "because investors believe there is a read through to what FDA will do with generic Copaxone."
UBS adds that while the FDA decision shows that it is will to approve complex molecules without full clinical trials, the exact criteria are uncertain. "Copaxone is a different molecule from Lovenox and, therefore, we believe that the FDA will need to determine the criteria for approving generic Copaxone independent of generic Lovenox."
Barclays Capital reiterates its "Overweight" recommendation for Teva, led by CEO Shlomo Yanai, with a $73 target price, saying, "Teva remains our favorite name in the generic space, and we continue to recommend purchase for longer-term investors." It explained, "We believe that today's weakness in Teva shares reflects concerns that the generic Lovenox approval increases the likelihood of the FDA approving generic versions of Copaxone without the requirement for clinical data, which we continue to view as highly unlikely. Recall, Copaxone is significantly more difficult to characterize than Lovenox, and we continue to believe clinical studies will be required."
Published by Globes [online], Israel business news - www.globes-online.com - on July 25, 2010
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