JPMorgan has downgraded its recommendation for Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) from "Overweight" to "Neutral, after more than five years of bullish assessments about the company, and cut its target price from $45 to $43, just 12% above Friday's closing price of $38.34 on Wall Street.
JPMorgan joins Goldman Sachs, Morgan Stanley, and Bank Hapoalim in downgrading the company.
"While we believe Teva’s management is taking the appropriate steps to reposition the company, this recovery is likely to be a gradual one with Teva needing to substantially rebuild its pipeline in the face of an eroding Copaxone franchise," says analysts Chris Schott, Dana Flanders, and Jessica Fye. "In a different market environment, we believe a longer-term recovery could be enough to warrant an 'Overweight' rating with Teva trading at 7.2 times our 2014 estimated earnings per share. However, in a rapidly consolidating specialty pharma/generic space, we see more compelling opportunities elsewhere in our coverage universe and, along these lines, are moving to the sidelines."
The analysts add, "We do not see near-term upside to either Teva’s earnings or multiple." They note, "With Copaxone facing both incremental branded competition and uncertain generic risk, we see few catalysts meaningful enough to drive shares higher in the near term." In addition, Teva's $1.5-2 billion five-year cost-cutting plan, switching priorities in its generics business to sustainable profit growth, and refocusing of its brand drugs efforts will take time and require incremental investment, limiting the potential for near-term earnings upside.
Although the analysts believe that generic Copaxone is a low-probability event, the risk cannot be ignored. Copaxone, which represents more than 50% of Teva’s earnings, will continue to be a source of uncertainty as the theoretical launch date of generic versions in the US of May 2014 nears.
As for new therapeutic entities (NTEs - improved versions of existing molecules, such as, improving dosing convenience or new routes of delivery) the analysts say that 4-6 years will pass before they become a significant growth driver for Teva. "While this approach should speed up developmental time and require less R&D spend relative to traditional branded opportunities, visibility remains low and we have a number of commercial and IP questions around Teva’s approach," they caution.
Published by Globes [online], Israel business news - www.globes-online.com - on September 15, 2013
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