Can Teva sustain its comeback?

Teva's R&D labs in Netanya  credit: Teva PR
Teva's R&D labs in Netanya credit: Teva PR

Analysts are bullish on Teva, which is once again Israel's most valuable company, due to an improved US generics price environment and promising branded drug pipeline.

Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA share price had last week jumped almost 80% since the start of the year, although in the days following its third quarter financial report last Wednesday, the share price has lost 8.8%, even though positive results were presented, amid profit-taking by some investors.

Most pf the investment bank analysts covering the Israeli pharmaceutical company remain bullish regarding the share price and have not changed their price targets or recommendations. They await the next event that could affect the share in the shape of the Phase 2b trial results for the Anti-TL1A drug, which treats colitis and Crohn's disease. Teva is developing the drug with Sanofi and the results should be published before the end of the year. Because the drug has very large sales potential, the trial results could have a major impact on the share price, one way or the other.

According to Yahoo Finance, the analysts' average price target for the share is $21.25, a 24.2% upside on the current price on the NYSE. Teva, under CEO Richard Francis, is trading at a market cap of $19.8 billion.

Teva's third quarter financial results were slightly higher than the analysts' expectations with revenue of $4.33 billion, up 12.5% from the corresponding quarter of 2023 and non-GAAP earnings per share of $0.69, non-GAAP net profit of $798 million, and a GAAP net loss of $437 million. Teva again raised its 2024 guidance, this time to $16.1-16.5 billion and non-GAAP earnings per share of $2.45.

J.P. Morgan "Neutral"

Revenue growth is due to growth in Teva's US generics business, the company's main market, among other things due to sales of Revlimid, although these sales are likely to fall next year because the drug for treating myeloma will face fiercer competition from other generic treatments.

We expect generics in the US to continue to be a focus for upside in the fourth quarter and in 2025," J.P. Morgan analyst Chris Schott wrote. He added that he is neutral on revenue from Revlimid and that Teva's generic results in the US were lower than the bank had expected. This could be one of the reasons why Teva's share price has fallen in recent days. J.P. Morgan maintains its "Neutral" recommendation on Teva with a target price of $18. Schott wrote, "Teva continues to progress with its innovative product pipeline." He said that despite concerns that investments in branded drugs would harm profit margins, the company has done effective work with the assistance of collaborations.

Leader Capital Markets head research analyst Sabina Levy wrote that Teva does not expect a significant change in the generics price environment in the US in 2025, while new launches, including complex generics, combined with continued expansion in the biosimilar field (generic versions of biological drugs) will contribute to good performance in the segment, and compensate for the expected decline in Revlimid revenue in 2026. Levy said, "Investors' concerns regarding the expected publication of the results of the trial (Anti-TL1A), combined with the sharp increases presented by the stock, led to one-off profit-taking."

The orders backlog is healthy and the debt is falling

Oppenheimer believes that the disappointing performance of Teva's share in recent days was due to accounting reductions and a fine of $450 million from the EU (Teva announced that it plans to appeal it). Omri Efroni, Sergey Vastchenok and Avivit Mannet-Kalil from Oppenheimer raised the price target from $20 to $24. On the anti-TL1A drug, they wrote that it could be Teva's "next Copaxone", and mention that it has already received an investment of $500 million from French company Sanofi (as part of a collaboration agreement signed last year), an amount that could still increase. In their estimation, Teva sees this as the flagship drug that will lead to growth from 2027 onwards.

Evercore ISI analyst Umer Raffat gives an "Outperform" recommendation for Teva's share without a target price. He mentions that Teva beat the forecasts on revenue and EBITDA and pointed out that Teva had raised its sales forecast for the Uzedy branded drug for treating schizophrenia to $80-100 million after sales of $75 million since the start of 2024. He mentions this, since he says there were investor concerns about the pipeline. Raffat also points out the continued reduction of Teva's debt, noting that in 2025 debt repayment of around $1.4 billion is expected to come from free cash flow. However, in 2026-2027, Teva will be required to refinance debt, "and it seems that market conditions can only improve." At the same time, Teva expects to sell its raw ingredients business, as it has previously reported.

Backing for branded drugs

Piper Sandler is also looking ahead and analysts David Amsellem and Alex von Riesemann write, "As we look beyond 3Q24 for Teva, we remain confident that management is well-positioned to drive margin expansion, particularly in light of the continued aggressive growth out of the Austedo franchise (branded drug for treating Huntington's Chorea and Tardive Dyskinesia). They note that sales grew by 28% to $435 million, with 36% growth in the number of prescriptions and note, "Management did make it clear that there were no inventory headwinds or headwinds related to net realized price." The Piper Sandler analysts leave their recommendation unchanged on "Overweight" with a target price of $23.

Published by Globes, Israel business news - en.globes.co.il - on November 11, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Teva's R&D labs in Netanya  credit: Teva PR
Teva's R&D labs in Netanya credit: Teva PR
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