Clal Finance Batucha analyst Yisca Erez has cut her target price for Teva Pharmaceutical Industries Ltd.’s (Nasdaq: TEVA; TASE: TEVA) share from $47 to $40 with an “outperform” recommendation. She believes that Merck & Co.’s (NYSE: MRK) action concerning Zocor last week cannot be ignored. Merck announced that it was negotiating with a number of insurance companies to lower the price of Zocor. Merck reached agreement with one insurer, UnitedHealth Group Inc. (NYSE:UNH), to reduce the co-payment for Zocor made by patients at pharmacies to $10 from $25.
Erez said, “Merck’s action may not be economic, but it cannot be ignored, and is liable to affect the generic industry in the long term.” Commenting on intervention by the US Federal Trade Commission (FTC) at the request of some senators, he added, “The FTC’s intervention will sort things out a bit, but it could take time, if at all.”
Erez believes that the launch of generic Zoloft at the end of June will be the test. “If Pfizer Inc. (NYSE:PFE; LSE:PFZ) takes the same action, we’ll be facing a completely different generic game in which profit levels will be much lower, and in which the balance will be tipped in favor the original companies. Even if Pfizer does not take similar action, it does not mean that the phenomenon will disappear.”
Erez suggests that since Merck did not break the law, there is a chance that generic drug companies will have to adapt to a new environment, in which their revenue and profitability will be lower. Another possibility is that the FTC will intervene and decide otherwise. Erez picks the first scenario, in which generic drug makers will adapt to a more competitive environment. She recommends waiting to at least the end of the month to see whether Pfizer will undermine the launch of generic Zoloft.
Published by Globes [online], Israel business news - www.globes.co.il - on June 27, 2006
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