Investment bank Morgan Stanley has put a landmine under Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), whose share price is down some 6% on the Tel Aviv Stock Exchange so far today. The bank has downgraded its rating for the stock from "Market perform" to "Underperform", and cut its price target to just $6. Teva has not been traded at that level since 1999 (adjusted for dividends distributed since then). Morgan Stanley's target compares with a closing price of $9.25 for Teva in New York on Friday.
The main reason for the downgraded recommendation is the greater than expected pressure emerging on generic drug prices, as Amneal Pharmaceuticals, Inc. reported last week, as a result of new pressure from distributors such as ABC and McKesson.
Amneal published a profit warning and announced a cost cutting program, and its share price has been almost cut in half in the past few sessions. Morgan Stanley believes that small generics companies are prepared to compete with the big companies with lower than expected prices, which makes the pressure by the distributors more effective.
Morgan Stanley has changed its recommendation for Teva twice in the past few months. Last November, the recommendation was upgraded to "Outperform", after two years of a neutral "Market perform" recommendation, but four months later it was again downgraded to "Market perform", and now it has fallen another grade, to "Underperform".
Over this period, Morgan Stanley's price target for Teva has been cut from $27 to $22, then to $16-17, and now to $6, while Teva's share price in New York has fallen from $22 to $9.25, giving it a market cap of $10.2 billion. At its low, a month ago, Teva's share price was at $8.12.
Meanwhile, Morgan Stanley has left its recommendation for rival generics company Mylan at "Outperform", although it has cut its price target. Morgan Stanley says that a lack of developments as far as Mylan's strategic plan is concerned could lead to a downgrade.
Published by Globes, Israel business news - en.globes.co.il - on July 15, 2019
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