Conquering generic Copaxone phobia

Shiri Habib-Valdhorn

With Teva's stock 23% off its peak, two analysts talk to "Globes" about what could revive it.

What's happening to Teva Pharmaceutical Industries Ltd.'s (Nasdaq: TEVA; TASE: TEVA) stock? It seems that negative sentiment towards it won't change even when the company releases positive news. For example, the good data from the clinical trial of Laquinimod, an oral treatment of relapsing forms of multiple sclerosis, hardly had any impact on the share price on Wall Street yesterday. Since the March 2010 peak, Teva has fallen 23%. Its market cap on Nasdaq is currently $44.2 billion.

We spoke to two analysts who cover Teva to try to obtain an explanation for the state of the stock, and to list the triggers that, despite everything, could set off a price rise in the coming months.

"There certainly is negative sentiment," says Amir Argaman, macro analyst at Oppenheimer Israel. "The reason is mainly the threat to Copaxone, and also certain doubts on the market's part about Teva's long range forecasts."

Copaxone, Teva's original MS treatment, which generates annual sales of $3 billion and nearly a third of Teva's profits, is liable to encounter generic competition, and investors are anxious. "I think that the fears attributed to these risks are exaggerated and are well discounted in the current price of the security, and are partly unfounded," Argaman believes.

Harel Finance analyst Steven Tepper, who specializes in pharma and biomed, says the position of Teva's stock is a disappointment. "Teva is traded at historically low multiples, lower than multiples for generic drugs companies. The reason is psychological deep fear over the dependence on Copaxone."

If so, what could make the share price rise?

Argaman: "The market has slightly forgotten, but there could be a launch of generic Lovenox (a blood thinner, S. H-V.) in mid 2011, which could add $0.05-0.10 to annual earnings per share. In addition, the second half of 2011 is expected to be much better. There are about 40 products due to be launched in 2011, mainly timed for the second half. In the first quarter there were a few unimportant launches."

Tepper: "In June, the US Food and Drug Administration, the FDA, will give a response to Teva's move on Copaxone. In the past, Teva has twice filed a citizen's petition, and each time, the company was told that there was still no decision. The optimum response would be if the FDA decided that generic companies will have to carry out a clinical trial before receiving approval for generic Copaxone. But if there is another deferral, Teva will gain more time.

"After that, in the third quarter, results of a further clinical trial of Laquinimod will be published. These are likely to reinforce what was published this week. In September, the case against the companies developing generic Copaxone will start to be heard. If there is no positive signal for the other side, that will be positive news for Teva, because the chances of an at-risk launch of a generic version will fall."

Would an acquisition boost the stock?

Tepper points out that a substantial acquisition of an original drug company could revive the stock. "There are many companies in areas in which Teva operates neurology, oncology, and the nervous system and an acquisition would dilute the high dependence on Copaxone."

Argaman prefers to talk about Teva's core business, generics: "This is an area that will benefit from clear trends, such as a rise in standards of living and greater awareness in developing countries, and a rise in life expectancy in developed countries. This is a positive basis for the entire industry, alongside mergers and acquisitions and stable profitability. Despite the difficulties, most of the fundamentals are good, and the company is excellently managed."

Argaman has maintained a price target of $65 for over a year, and in recent months, Tepper has set a target of $64, prices that are 32% and 30% above market respectively. According to Bloomberg data, the average target price for Teva is $63.9. 26 analysts are positive on the stock, seven are neutral, and no-one recommends selling.

Published by Globes [online], Israel business news - - on April 13, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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