The two largest pharma companies on the Tel Aviv Stock Exchange (TASE) finished the first half of 2018 on opposite trends. While Teva Pharmaceutical Industries Ltd.'s (NYSE: TEVA; TASE: TEVA) share price has surged 28% since bottoming out in late 2017, Perrigo Company's (NYSE:PRGO; TASE:PRGO) share price lost 16% in the first half of the year. Despite the recovery in Teva's share price, it is still 26% shy of its price a year ago, while Perrigo's share price is 3% lower than its price a year ago.
At the beginning of the second half of 2018, Poalim IBI Underwriting and Investments (TASE: PIU) pharma and medical analyst Steven Tepper outlines what he thinks is in store for the two companies. He writes about Teva, "The share is being traded on a migraine," referring to the Fremanezumab drug for treatment of migraine headaches, for which US marketing approval is expected on September 16.
Tepper notes that Teva CEO Kare Schultz is successfully restoring investor's belief in the company. Tepper believes that the positive mood about the share is likely to continue in the second half of the year. "Competition for Copaxone is still more moderate than expected, the threat of competition from Perrigo for Teva's ProAir inhaler has been put on indefinite hold, and competition for Teva's Treanda-Bendeka anti-cancer drug has been delayed until 2022 by a court judgment," Tepper asserts. He says that the second quarter report that Teva will publish in early August will be a surprise and outstrip the conservative guidance provided by the company at the beginning of the year.
Teva's drug for migraine was expected to obtain approval from the US Food and Drug Administration (FDA) earlier, but the FDA discovered deficiencies in the plant of Celltrion, the South Korean company producing the active ingredient for the drug. Tepper writes, "The factory in South Korea producing the drug for Teva is due to undergo FDA inspections in the coming weeks. Success in the inspection will therefore pave the way for the desired approval in September. If the FDA finds additional material deficiencies in the plant, however, we will expect the desired approval to be delayed beyond September, and even beyond 2018."
According to Tepper, uncertainty about the drug will leave Teva's share price in the coming months in a narrow band of $23-25. "A positive sign about obtaining approval for the drug can push the share price up in the direction of $28-30, while on the other hand, a postponement is liable to drive it back down to around $20. At this stage, we believe that the chances of obtaining approval in September are greater than the chances of a postponement," he summarizes.
Perrigo waiting for approval for generic ProAir
Writing about Perrigo, Tepper says, "Perrigo's lead in health products, its special focus on generic products featuring limited competition, its success in both streamlining and launching new products, the quality of its management, and its capital structure - all of these combined justify a higher premium and profit multiple than that of its conventional generic competitors." At the same time, he emphasizes, "We see no significant growth engines in the coming years and are concerned about the company's ability to maintain a high profit margin in the generic sector under the current market conditions."
Tepper believes that Perrigo will be affected in the second half of the year mainly by receiving FDA approval for its generic version of Teva's ProAir inhaler for treatment of the respitory passages and shortness of breath due to asthma. Perrigo first predicted that it would be able to launch the drug late this year, but several weeks ago announced a delay. Tepper writes, "Uncertainty prevails about the duration of the postponement and the chances of obtaining approval in 2019. The launching of generic ProAir was to have been the most significant generic launch in the near future, so the delay is likely to have a substantial affect on growth in the short term."
He added, "In the coming months, the share will also be affected by continue expectations that the company and its new CEO will present a clear strategic plan for accelerated development and growth in the medium and long term. Further delay in presenting a plan, or alternatively, the presentation of a superficial plan are liable to have a negative impact on the share."
Published by Globes [online], Israel business news - www.globes-online.com - on July 3, 2018
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