Analysts embarrassingly misread Teva’s direction
Target price went from $100 per share to less than $20
An especially optimistic analyst at the Cowen & Co. investment house gave a $100 target price for Teva’s share only two years ago.
In July 2015, shortly after Teva announced its acquisition of Actavis, Allergan’s generics division, for $40 billion, when Teva’s share price was $62, Ken Cacciatore wrote that he believed in the measures that $100 was the right price.
Needless to say, a $100 price for the Teva share is now a distant dream, while Cowen & Co.’s current target price for the share is $18. Following its recent plunge, Teva’s share is now traded at only $16, 84% lower than Cowen & Co.’s 2015 target price, and reflecting a $16.2b. market cap.
Cowen & Co. were not the only ones. Reading analysts’ surveys from the summer of 2015 shows that many of them were infected with the optimism coming from Teva, proclaiming that the Actavis acquisition was an excellent deal, and that Teva’s dependence on Copaxone was decreasing. In retrospect, it can be seen that like Teva’s management, the analysts also failed to read the map with respect to Teva’s share.
Teva’s management always knew that the day would come when it would lose its exclusivity for Copaxone, and tried to prepare for it by creating new growth engines to compensate for the expected loss of revenue. Several of these measures were positive.
For example, the acquisition of Auspex in 2015 brought Teva an original product likely to be important – Austedo, recently launched in two forms: for treatment of Huntington’s chorea, and for treatment of latestage adult dyskinesia.
The acquisition of Labrys a year earlier contributed an important product for treatment of migraine headaches, Fremanezumab, to Teva’s drug pipeline. The drug scored positive results in treatment of both chronic and acute migraines, an enormous (albeit highly competitive) market, and Teva is likely to launch it in 2018 if all goes as planned, with a consequent contribution to its results.
Other acquisitions designed to replace Copaxone, on the other hand, were shown in retrospect to be dubious. Cephalon, acquired in 2011, contributed much less than expected. Production at Rimsa in Mexico was halted after the acquisition was completed in 2016. Teva sued the sellers, alleging fraud, but lost the case. Actavis, the biggest acquisition in Teva’s history, was too expensive. Two months ago, Teva announced a $6.1b. write-off of goodwill for its generics business in the US, at least part of which resulted from Actavis’s activity.
In the summer of 2015, however, when Teva abandoned its attempt at a hostile takeover of Mylan in favor of acquiring Actavis, the investors and analysts cheered. One of the aspects of the deal cited as positive was reducing Teva’s dependence on Copaxone. JP Morgan wrote that Teva was distancing itself from dependence on Copaxone following the deal, and said that this was a positive development. JP Morgan’s target price for Teva’s share was $82, a 19% premium on the market price.
Twenty-seven months later, JP Morgan’s target price for the share is $20, and its recommendation for the share is neutral, not positive. The firm’s analysts wrote last week that approval of generic Copaxone added to the already gloomy short-term profile, after Mylan announced that it had obtained marketing approval for a generic version of Teva’s flagship drug.
In July 2015, Citi had a target price of $86 and spoke enthusiastically about investors being able to look beyond Copaxone. Today, Citi’s target price is $20. Barclays had a target price of $75 in July 2015 and today it is $21. UBS had a target price of $72 in July 2015 and today it is $19.
THE HEADQUARTERS of Teva Pharmaceutical Industries.