An­a­lysts em­bar­rass­ingly mis­read Teva’s di­rec­tion

Tar­get price went from $100 per share to less than $20

The Jerusalem Post - - BUSINESS & FINANCE - • By SHIRI HABIB-VALDHORN (Reuters)

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.

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