Meitav Dash Investment House Ltd. believes that Teva Pharmaceutical Industries Ltd.'s (NYSE: TEVA; TASE: TEVA) revenue in 2019 will outstrip the company's guidance. Meitav Dash raised its recommendation for Teva's share from "Market perform" to "Market outperform" and its target price to $23, 35% higher than the market price. The share price fell 29% in recent weeks, among other things because of the investigation into an alleged cartel by the generic drug companies in the US.
Meitav DS pharma analyst Jonathan Kreizman writes, "The recent sell-offs have created an opportunity in the share, for three main reasons: an excessive response to the antitrust affair in the US, less loss of revenue from Copaxone than expected in the coming year, and overly pessimistic forecasts for the generics industry in the US." Kreizman believes that Teva will post $18.3 billion in revenue in 2019 and nearly $5.6 billion in EBITDA, significantly higher than the analysts' consensus.
"2019 looks fine; the question starts in 2020"
Kreizman adds, "It is difficult to estimate the latent damage of the US antitrust investigation," but adds that the accusations are directed against junior management, which he believes weakens the case for a "widespread conspiracy," because of the difficulty faced by a fairly low-level manager in fixing prices of 300 drugs (as suspected). Kreizman also writes, "To the best of our understanding, the level of the managers at whom the suspicions are directed is likely to be significant in determining fines and damage. Assuming that most of its former management is no longer with the company, we believe that if and when the conditions are ripe, current management will be in an objective position for concluding the investigation with a compromise." He says that additional details about the gravity of the evidence will become clear by late March when the trial of the state's witnesses in the case ends, and notes that as far as is known, Teva is not one of the companies against whom search warrants were issued.
When it comes to Copaxone, Teva's branded drug for multiple sclerosis treatment, Kreizman writes that thus far, "Most of the cards have fallen Teva's way;" the market share of Mylan's generic version of 40-milligram Copaxone is 21%. Momenta and Sandoz, manufacturers of the second generic version to enter the market, "have been left with a 2% market share, which we believe will rise to 5% in 2019." At the same time, he adds that Teva is being hurt more than expected by the price cut for Mylan's generic version last summer. He predicts that the price will slide 35% in 2019, and that Teva's market share will fall to 70%.
As far as the generics industry is concerned, Kreizman writes that after a general collapse in prices in recent year, a trend toward stable prices is emerging. He believes that prices will fall 8% in 2019, while the potential for launches of new generic drugs in 2019 amounts to $300 million.
"2019 looks good to us. The questions begin in 2020," Kreizman writes. "Although Teva has topped providing profit figures for segments, we did a profit analysis that assumes $5.56 billion in EBITDA as a result of a positive offset between loss of EBITDA from lower drug prices ($440 million less from Copaxone) and a gain of $900 million from cost cutting. In 2020, on the other hand, we foresee EBITDA dropping to $5.4 billion, because the streamlining plan is ending and the expected growth in sales of the Austedo and Ajovy drugs is not enough to compensate for the continued loss in revenue from Copaxone."
Teva, managed by CEO Kare Schultz, has an $18.4 billion market cap.
Published by Globes, Israel business news - en.globes.co.il - on December 19, 2018
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