Exactly one year ago, Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) shares reached an all-time high of $64.95 on Nasdaq. The share price has since fallen 26%, while Nasdaq has climbed 8.5%, and the frustration among Teva's shareholders is rising.
Threats of generic Copaxone, Teva's branded drug for the treatment of multiple sclerosis, is weighing on the share, and deterring investors, even as the company is traded at a low profit multiple of 13, and a projected profit multiple of 8 for 2012.
The question is whether now is the time to buy Teva shares, as did hedge fund king John Paulson in the fourth quarter of 2010, when worries that competition to Copaxone would turn into reality in the near term caused Teva's share price to plummet. "Globes" spoke with leading Israeli capital market analysts to hear what they had to say about the "people's share".
"Globes": What is weighing on Teva's share?
Harel Finance analyst Steven Tepper: "Besides the specific problem of Copaxone, investors have woken up to the fact that Teva is a big pharma company, and not just a generic drug maker. It has reached a size that puts it in the top ten drug companies in terms of market cap. Therefore, Teva's future profit multiple for the coming year has fallen from 13 to 10, just like all the big pharmaceutical companies.
"I estimate that 35% of Teva's profit comes from Copaxone, and that Copaxone is 90% of the problem weighing on Teva's share. It is a psychological burden because the share has fallen so far lately that we're reaching levels that if we take Copaxone out of the equation, Teva's share is worth $43.
What are the points of light?
"In the short term, the psychology will still be negative. I also understand that many large US funds are anti-Teva. Two big changes have to happen for a turnaround. First, if the FDA simply announces that the generic Copaxone of Momenta Pharmaceuticals Inc. (Nasdaq: MNTA) has to undergo a full clinical trial. This is, of course, Teva's dream, because a trial could take two or more years. The other big change is if Teva announces a very big acquisition of at least $5 billion, which would reduce the company's dependence on Copaxone. There are also small things that have less influence, such as a decisive court ruling on generic Copaxone (the first hearing was held in September)."
Where will Teva's share be at the end of the year?
"Financially, the share ought to be traded at $62-64, but the problem is on the psychological side. If we take the psychological aspect into account, I think that the share will be traded at $50-55 for a long time, unless the changes I mentioned occur."
What is weighing on Teva's share?
IBI Investment House analyst Natali Gotlieb: "Investors are seeking multidimensional security in paper even though there is risk in any investment. Teva's share has not been acting on the basis of the company value, but in reaction to events - and the latest events have been negative."
What are the points of light?
"There are many points of light. I don’t think that companies will reach market with Copaxone equivalents by an at-risk launch, so Teva has a cushion of legal hearings. I believe that it will take time before we see a generic version of Copaxone. The second thing is that Teva is bringing more products onto the market, such as Laquinimod (an oral treatment for multiple sclerosis). Thirdly, Clal Biotechnology Industries Ltd's (TASE: CBI) drug pipeline, which is largely owned by Teva, has a lot of very interesting products."
Where will Teva's share be at the end of the year?
"$55-60 per share."
What is weighing on Teva's share?
Poalim Sahar analyst Yoav Burgan: "Primarily, it is the threat of generic Copaxone, followed by oral versions of the drug. The fact that Copaxone sales have grown has only highlighted Teva's business dependence on it. Other factors can also be cited: disappointment over the financial report for the fourth quarter, and the company's guidance for 2011, and in the longer term, the fact that global big pharma companies are increasingly casting their eyes at the generic industry, Teva's bailiwick, which will make it harder for Teva to make large acquisitions in the future on one hand, and raises the transaction multiples on the other."
What can help the share to recover?
"First and foremost, a big acquisition that investors will consider as successful as the acquisition of Ratiopharm. This is a rare thing, because the share of the buyer usually falls. Besides that, any positive development that the company presents for Laquinimod will help the share."
Where will Teva's share be at the end of the year?
"I'm conservative and fairly downbeat - $50-55 per share."
Teva's share price fell on Nasdaq yesterday to $47.90, giving a market cap of $45.06 billion, and fell 0.5% by mid-afternoon on the TASE today to NIS 169.50.
Published by Globes [online], Israel business news - www.globes-online.com - on March 22, 2011
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