Teva Pharmaceuticals: A Picture of Health

6/17 - "Quoted from a recent interview on the WSJ’s Health Blog (link here), the Novartis CEO basically pulled a Rocco Mediate, Tiger’s 45 year old , nice-as-anything nemesis in the playoffs who just wouldn’t quit. Addressing a great performance by Teva (TEVA), the #1 generic drug manufacturer globally compared to Novartis’s Sandoz unit at #2, Novartis CEO, a la Rocco, said, “Teva is better than we are, and that’s hard to take.”

"According to the blog, the Novartis CEO continued with more praise for Teva. “The Israeli generics shop is bigger, with more vertical integration, and has been outpacing Novartis’s generic unit on key measures of success in the business, Vasella said."

"Katsman covered some interesting developments today in the Teva story, as Azilect, which is the brand name for rasagiline, has made some strong progress in treating Parkinson’s. According to the company via Haaretz, this new “drug can actually slow the disease’s progression, which can’t be said for any other therapy for the so-far incurable nervous system condition.”

So, in addition to the strongest generic business in the market, Teva is moving forward with a strong pipeline in its branded portfolio — something even the top pharmaceutical firms are struggling with."

7/7 - "While we continue to believe that Teva remains the premier generic drug company for a host of reasons, including management’s excellent track record, its sizeable generic pipeline, the company’s competitive advantages (e.g., global supply chain), as well as its key branded product franchises, we downgraded Teva’s shares to Hold early this morning following the failed Copaxone 40 mg Phase 3 trial, as we no longer think the current outlook merits a premium to the forward growth rate, largely due to Copaxone-related issues."

"Early this morning, Teva released the much anticipated Copaxone 40mg Phase 3 (FORTE trial) results for treating relapsing-remitting multiple sclerosis. While the 40 mg dosage strength of Copaxone was safe, importantly, it did not demonstrate increased efficacy over the 20 mg dosage strength. In our view, this is a disappointing outcome given that a positive trial result, which was expected, would have had: 1) afforded possible upside to our estimates in 2009 and 2) led to greater pricing power for Copaxone (had it demonstrated “superiority” attributes) for sometime."

"We still see solid annual EPS growth over the next three years, driven by 1) an acceleration of growth opportunities outside of the US, 2) continued growth of the company’s second branded neurology drug Azilect for Parkinson’s Disease (potential new/expanded labeling from the recent ADAGIO study), & 3) the still significant opportunity in the switch of CFC to HFA based respiratory products, among others. Copaxone should remain a key driver for Teva, based on the full reclamation of the North American rights from Sanofi starting in 2Q10."

"Our 12-month target is $47, based on 15x our unchanged ‘09 EPS estimate. The 15x multiple is in-line with Teva’s forward growth rate and in-line with its peer group of comparable generic companies. Previously, we had applied a 17.5x multiple (17% premium to Teva’s forward growth rate) to our 2009 EPS estimate."

7/7 - "We are adding Teva to the Americas Conviction List following Monday’s ~9% pull-back (S&P 500 down ~1%) which eliminated ~ $3.4 billion in equity cap and has now placed shares near a 5-year low on P/E. While disappointing Copaxone 40mg (FORTE trial) phase III results tempers one source of potential upside, we see Azilect as the more important near-term driver to franchise value. Combination of trough valuation, near-term catalysts and defensive characteristics in challenging market back-drop create an opportunity for near-term reversal in recent weakness – adding to Conviction Buy list with 30% upside from current levels to our $56 PT."

"Two key catalysts over the near-term: (1) 2Q results which we anticipate late July where we are looking for generic Risperdal driven EPS upside (we are $0.02 above the $0.64 Street estimate) and potential for positive commentary around 2009 outlook; and (2) ADAGIO (Azilect – Parkinson’s) trial results at the European Federation of Neurological Societies (EFNS) August 23-26 in Madrid. Full ADAGIO trial results should make the market opportunity more transparent on what we see as the biggest driver of upside near-term - each additional ~$300 million in sales (above our current $300 million peak) could drive ~$0.25-0.30 in sustainable EPS upside (~ 7-8%)."

"Teva shares trade at 13.9X our 2009 EPS and valuation is now near 5-year trough lows. Our 12 month price target of $56 implies 30% upside to current levels...Key risks revolve around unexpected competition and uncertainty
associated with patent litigation."