Migdal Capital Markets: Teva investors in hysteria

"Serious analysts don’t take drug trials into account."

"When a pharmaceutical giant has a winning ethical drug in hand it almost always use the 'safe' method. It will conduct a trial to test the drug at a higher dosage, and examine whether it succeeded and if the drug's effectiveness was enhanced. If the trial is a success, the drug company will enjoy three more years of exclusivity as well as registering the patent. If the trial fails, so what," wrote Migdal Capital Markets analyst Eran Cohen in the company's Money Talks blog.

"This is exactly what happened with Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) and the failed trial of Copaxone 40 mg. As expected, the announcement of the failure caused Teva's share to drop 6% on the TASE. However, a thorough analysis of the significance of the failure shows, as usual, that the Israeli market tends towards hysteria."

Cohen says that, in actuality, the sole significance of the trial failure is that Teva's exclusivity for Copaxone will not be extended for three more years after 2014. By this time he says that next-generation drugs to treat multiple sclerosis will be available anyway.

Cohen says, "Teva scientists are already working on developing these drugs, and one of them last week passed the Phase II clinical trial ahead of US Food and Drug Administration (FDA) certification. If this drug succeeds, it will be on the market within six years, and it could create a real revolution with huge potential."

Cohen notes that Teva also has an oral drug for multiple sclerosis, Laquinimod, which is being jointly developed with Active Biotech AB (OMX: ACTI). He says, "Copaxone is a very hard drug to copy and just as difficult to market. Even after its patent expires, it is doubtful if the company's competitors will succeed in doing so, including India's Natco Pharma Ltd. (BSE: 524816), which recently announced with US drug giant Mylan Laboratories Inc. (NYSE: MYL) that it had success in this area."

Cohen concludes by noting the response on the TASE. "Serious capital market analysts never really expect profits and dizzying success from trials of new drugs, because most of the trials end in failure. Therefore, these trials are not covered in the analysts' profit forecasts. When such a trial fails, it definitely does not justify a 6% plunge in the share price in one day. It's true that there is always a lot of the money in the market that is disappointed by such announcements, and this money abandons a share, but there is no reason to get excited.

"The dynamics of the Israeli market work as follows: Teva announces the failure of some trial, the negative buzz in the market, which reflects worries that the Wall Street 'crazies' will dump the share without mercy cause the price to plummet on the TASE. The Israeli investor tells himself, 'Let's abandon the share before the goys kill it. At worst, it will fall a lot and we'll buy it back, this time at a bargain'."

Published by Globes [online], Israel business news - www.globes-online.com - on July 7, 2008

© Copyright of Globes Publisher Itonut (1983) Ltd. 2008

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018