Citi Research analyst Liav Abraham has raised her target price for Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) to $60 and reaffirmed her "Buy" recommendation for the stock. She says that Teva has the most attractive risk-reward profile in its peer group of international generic drug companies.
"Our thesis is not predicated on the need for M&A, and we view the resilience of Teva’s Copaxone franchise, the commercial potential of the pipeline (particularly the respiratory and new therapeutic entities (NTE) portfolio), and optionality for increased net cost savings, as sufficient to drive further upside from current levels," Abraham writes. The new target price reflects an earnings multiple of 13 for 2015, compared with the multiple of 13.6 for the peer group.
"The Copaxone franchise is likely to be more resilient than the Street is forecasting," says Abraham. "The Synthon GATE headline data comparing the company’s generic glatiramer acetate versus Copaxone 20mg do not change our view on Teva, and we note that the Street is already modeling 24% and 28% declines in Teva’s Copaxone franchise sales in 2014 and 2015. We believe that Copaxone will likely be more resilient than the Street is forecasting, and note the following: the market potential for generic Copaxone 20mg is declining with the robust switch of patients to Copaxone 40mg. At the current switch pace, we anticipate that Teva will be able to exceed its targets of a 40-50% switch by year end."
Abraham says that Teva’s guidance that 18% of Copaxone patients will switch to oral agents during 2014 is overly aggressive. She adds that her increased confidence in the resilience of Copaxone has important implications for Teva’s free cash flow generation, enabling the company to improve its financial flexibility to reduce its debt, make acquisitions, or increase dividends.
"The first quarter earnings are the next material catalyst," says Abraham. "The Street will have the first opportunity to hear from Teva’s new CEO at the first quarter earnings on May 1. We anticipate that Mr. Vigodman’s near-term focus will center on Teva’s Copaxone switch to 40mg, the company’s cost-cutting program, and smaller, accretive M&A transactions."
Published by Globes [online], Israel business news - www.globes-online.com - on March 30, 2014
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