Two of the three financial institutions that issued negative recommendations on Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) have now upgraded their recommendations on the stock. Morgan Stanley and JP Morgan, both of which had made a recommendation of “Underweight,” have upgraded their recommendations to "Equal weight" and “Neutral", respectively. Currently, only Goldman Sachs, also the first institution to publish a warning for the stock, last July, is keeping its "Sell" recommendation for Teva.
Teva’s share price has risen 37% from the low reached following the departure of former CEO Jeremy Levin. In January, Teva obtained US Food and Drug Administration (FDA) approval for its three-times-a-week dosage of Copaxone, its branded flagship treatment for multiple sclerosis. Teva is making strenuous efforts to migrate as many patients as possible from daily dosage to the higher dosage, in anticipation of potential generic competition. It expects to migrate 40% of current Copaxone users by midyear, but the market’s response to Teva’s forecasts was skeptical at first. It now appears that the analysts are beginning to be persuaded of Teva’s ability to accomplish this task.
Morgan Stanley analyst David Risinger says that the upgrade is due to Teva’s success in migrating patients to the new dosage. He says that migrating patients decreases the risk posed by generics, and, to date, the migration rate has exceeded expectations. “Four weeks after launch, 3TW represents 28% of new Copaxone prescriptions and 7% of total scripts. We now believe Teva will hit its 35% conversion target by June 1 and 50% by year-end."
According to Risinger, conversations with experts suggest that patients have a strong preference for the treatment with fewer injections, and many doctors are skeptical with regards to the effectiveness of generic drugs. “Higher US Copaxone projections drive greater earnings and cash flow durability. Improved earnings and cash flow outlook should give new CEO Erez Vigodman greater flexibility to pursue new internal and external growth opportunities,” he says. He did not upgrade his recommendation to “Overweight” because Copaxone still “contributes disproportionately” to Teva’s profits (he estimates 33% in 2015), and its sales are expected to erode, harming Teva’s profits. He raised his target price to $52, 5% higher than the current market price.
JP Morgan analyst Chris Schott says, “While we remain less enthusiastic around Teva’s organic growth prospects and its P&L reliance on Copaxone, we no longer believe our Underweight rating is warranted in light of favorable initial Copaxone 3x weekly trends and the potential for additional cost cutting activity.” He also mentions the “increased willingness” of Teva’s management to make major acquisitions. He raised his target price from $38 to $49, which is close to the current market price.
Published by Globes [online], Israel business news - www.globes-online.com - on March 18, 2014
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