Always something for Teva investors to worry about

Shiri Habib-Valdhorn

A sharp drop in first quarter US sales drove Copaxone from center stage.

Teva's flagship drug Copaxone has hardly been out of the headlines lately. The company's dependence on it has put pressure on investors, who are concerned at the growing competition to the multiple sclerosis treatment. However, after the release of Teva's first quarter results, Copaxone yielded center stage to a debate over another matter entirely. At the press conference Teva held today, the weakness of its generic sales in the US stole the show.

The market's reaction today switched from fears about the future of Teva to disappointment with US generic activity, which ironically is a tribute to the wide range of the company's business. Some activity will always be found for investors to be disappointed with, to cause them concern about its future. On the other hand, the diversity of Teva's activity enables it to make up for holes such as appeared in the generic activity in the US in the first quarter.

A drop in sales of no less than 32% in comparison with the corresponding quarter is no trivial matter. Fortunately for Teva, growth in Europe, Asia, and Latin America offset to some degree the weakness in the US. Teva's branded products, headed by Copaxone, lifted their contributions to the quarterly results, all of them growing in comparison with the corresponding quarter.

Copaxone's global market share rose to 31%. Sales of Copaxone represented 22% of Teva's total sales, and the drug's contribution to net profit is estimated at more than 30%. Sales of respiratory products grew mainly outside of the US, while Azilect reached record sales of $90 million. Women's health is a long way behind the hopes held out for it in the past, but nevertheless, this segment also grew.

All this helped Teva to report revenue growth, even if it did not meet the analysts' estimates. Earnings per share did meet the estimates, among other things thanks to repurchases of shares.

At the end of 2010, Teva announced a $1 billion shares buyback program, and in the first quarter it carried out 40% of the program. The company bought 7.9 million shares in this period, paying an average of $50.6 per share, which compares with a current market price of $47.1. Despite the large buyback, Teva's share price weakened by 3.4% over the quarter, and has fallen another 6% since the quarter ended.

The great question of course is what will happen to Teva's share price now? After a 30% drop from its March 2010 peak, most analysts are optimistic. Many of them point out that the share price is at a low, and put forward various reasons why it should recover. Among the reasons for optimism are a recovery expected in US sales in the coming quarters, including some important generic launches. For example, Teva is due to launch its version of blood thinner Lovenox in the next few months.

Another reason for optimism is the very respectable addition of drugs in development that will be contributed by Cephalon, which Teva bought for $6.8 billion. As well as this, there are products being developed by Israeli start-ups such as Polyheal and Gamida Cell, from the launch of which Teva will benefit in the future. Geographically speaking, growth in Japan and economic recovery in Germany are likely to contribute positively to Teva's results later on in the year.

There are also, however, several reasons for pessimism. The successful integration of Cephalon cannot be taken for granted, this being Teva's biggest ever acquisition of an ethical drug company. What is more, paying for Cephalon will raise Teva's debt burden (although there is no change in its credit rating at present). Copaxone too is set to lose some of its glory eventually, because of competition from orally administered drugs, and perhaps also from generic versions.

Is the market mainly taking notice of the negative factors, and underestimating the positive ones? Teva CEO and president Shlomo Yanai is unfazed. "The management and I as CEO are focusing on making the company grow, in creating a firm basis for the coming years," Yanai said today. "I believe that this will find expression in the capital market as it always does, because, in the end, the capital market reflects real economic activity. In between, things sometimes happen that I do not have the expertise to explain."

Published by Globes [online], Israel business news - - on May 11, 2011

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

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