Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) share price fell another 5.8% on Wall Street on Thursday and Friday to $10.87, wiping another $730 million of the Israeli company's market cap, and giving a market cap of $11.875 billion. The share price was down 2.55% in afternoon trading on the TASE today at NIS 39.72.
The share price has now slipped beneath the low point of $11.16, when CEO Kare Schultz assumed office at the end of November 2017. In the months that followed Schultz's arrival the share price recovered handsomely, but it has now fallen 57.6% since its high-point in August 2018 and it has fallen 24.3% over the past month. Teva's share price is now what it was 17 years ago (adjusted for dividend payments).
Leader Capital Markets head of research department Sabina Levy said, "It's a perfect storm. All the bad things that could have happened have come along and it simply looks like it's not going to stop. When Schultz arrived and we saw progress in the streamlining plan and some sort of stability in operations, then that gave the market a better feeling and improved the level of security but then there came reports about lawsuits and Teva's exposure is very high."
Levy explains that the current situation has been brought about by a combination of several factors. The first are the problems of the company itself over the past few years and that still exist - the high leverage, erosion in Copaxone revenue (higher than originally estimated), and the fact that although the generics market is stabilizing, it is still not a market growing very much, or very profitable, and Teva's two new branded drugs (Ajovy for treating migraines and Austedo for involuntary movements) are far from realizing their potential.
She says, "Teva doesn't current have the resources to create new engines of growth so that the company is very restricted in terms of what it can do and its focus is in minimizing the existing damage."
Another factor relates to the entire sector. "Every year investors examine their allocation according to sectors and in 2019 investors in the US market have not given an especially high rating to the generics and specialty pharma sector to which Teva belongs. That means abstaining from exposure to a sector that is not seen as attractive or very low exposure to it. That influences because there are no large bodies wanting to buy the share, the pricing is impacted and in addition there is no support for the share in volatile times."
Levy cites one more factor. "Despite the stabilization of the US generics market (which has fallen significantly in recent years), it is not for certain that everything that people are concerned about has happened. It is influenced by the dynamics of the insurance companies, distributors and producers and I am not sure that we have reached equilibrium among all of them.
"The Democratic party candidates in the 2020 presidential race are pushing for change in the US health system and supporting reform, which would make the health system in the US a government one, like in Europe and Israel. This could make the situation of pharmaceutical producers worse."
On top of all this there are the lawsuits against price fixing in generics and addiction to opioid painkillers. "Both lawsuits are very significant," says Levy. "The opioid suit is big and problematic and there is no doubt that this is a grave problem among the population, but in my opinion at least, although Teva is exposed to a fine, it is a much less serious lawsuit for the company compared with the price fixing suit because Teva is not a major player in opioids and did not lead any measures." Teva mainly sold generic opioids and only branded opioids after buying Cephalon and Teva claims, only to the very seriously ill.
But on price fixing, Levy sees Teva as being in much more serious trouble. "The company continues to believe that the allegations are unjustified but I think that at this stage it is difficult to assume that the probability is 0%. There is exposure here and the belief among analysts is that the fine will run into the billions of dollars."
She adds, "If Teva was currently a growing company with many growth engines, a strong cash flow and low leverage, then it could be that the impact of all these 'misdemeanors' on the share price would be lower, but all that is very marginal. Teva faces debt recycling in 2021 and needs things to go as planned , any new harm makes this very marginal."
Despite all this Leader gives Teva a "Market Perform" recommendation and a target price of $17, 56% above its current price.
Published by Globes, Israel business news - en.globes.co.il - on May 26, 2019
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