Teva Shocks Skeptics With Stock Rebound

New CEO and successful patient outreach drove Israeli drug giant's shares to three-year high.

A recent jump in Teva Pharmaceutical Industries’ stock price surprised many analysts, who have grown pessimistic about the performance of the Israel-based drug manufacturer.

Having climbed 35 percent in the past four months, Teva’s share price hit a three-year high last week.

One of the major concerns about Teva is that it will be unable to protect Copaxone — a drug for treating multiple sclerosis that has been the company’s main source of profits — from competition from similar generics. Copaxone sales reached $3.2 billion in the United States in 2013, accounting for 63% of Teva’s operating profits in the fourth quarter last year. Teva’s patent on Copaxone expires in the middle of 2014.

In preparation for the competition, Teva is trying to covert patients to a new version of Copaxone, which the company launched in January. The new version is injected in dosages of 40 milligrams three times a week, instead of in doses of 20 milligrams every day like the original.

Teva’s target is to convert 30% of Copaxone users to the new version by mid-2014, and 50% of users by the end of the year. Teva’s CFO, Eyal Desheh, has said that medical insurance providers will have to reimburse patients for the new version.

But analysts worry that the insurers will pressure their customers to return to using the old version of Copaxone, which is expected to drop 20 to 30% in price due to the generic competition. They also say Teva is being too optimistic about its ability to convert patients to the new drug, likely based on the company’s track record of failing to meet ambitious targets.

But figures released in recent weeks show that Teva had converted 8.7% of Copaxone users to the new version of the drug as of the last week of February, up from 4.6% a week earlier. Ken Cacciatore, an analyst at Cowen Group, recently told Bloomberg that he and others on Wall Street may have underestimated the efficacy of Teva’s patient outreach and that Teva’s targets may be accurate after all.

Copaxone was not the only reason for Teva’s boost. Analysts from Barclays Capital raised their target price for the stock from $42 to $65 with a recommendation of “Overweight” after the share closed at $49.30 last Friday in New York.

Teva has also enjoyed a resurgence in the U.S. generics market. After struggling for years to produce generic best sellers, with only a few notable successes, Teva last week received exclusive approval for two generic versions of drugs, the brand-name versions of which had annual revenues totalling $1.5 billion.

Another important factor is the appointment of Erez Vigodman as CEO to replace Jeremy Levin. Vigodman was presented to American analysts as an expert in rehabilitating companies. With many analysts hoping for a dramatic shake up at Teva, the move helped change sentiments about the company.

Teva chairman Phillip Frost’s statement that he will not seek to stay on past his current term, and may even leave earlier, did not hurt. Nor did appearances by Desheh, the CFO, at the JP Morgan Healthcare Conference in mid-January and the Cowen Group conference in March, which helped sway analysts.

Bloomberg
Ofer Vaknin