Moody's Investors Service is keeping its A3 rating and "Stable" outlook for Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) despite the failure of its oral multiple sclerosis drug Laquinimod to achieve its primary endpoint in the Bravo Phase III clinical trial. Moody's said that the trial result "currently do not have any effect" on the rating or outlook.
Analysts are divided about the significance of the failure. While all the analysts agree that this was bad news for Teva, and that it will take a long time to recover from the blow, some analysts believe that this is an opportunity to buy shares.
Citi Capital Markets reiterates its "Buy" recommendation for Teva with a target price of $67 - a premium of over 50% following yesterday's tumble. It noted that competing oral multiple sclerosis treatments - Novartis AG (NYSE:NVS; LSE: NOV; SWX: NOVZ) Gilenya and Biogen Idec Inc's (Nasdaq: BIIB) BG-12 - have shown better results in reducing the number of attacks, but they have lower safety profiles. Citi believes that Teva will apply to the US Food and Drug Administration (FDA) and European Medicines Agency (EMEA) for marketing approval for Laquinimod by the end of the year. Since Citi does not take Laquinimod into account in its pricing model for Teva, any approval will create an upside for the share.
UBS reiterated its "Buy" recommendation for Teva and $64 target price. It said, "Given that the study failed to meet its primary endpoint, we would expect a third Phase III to be necessary for approval (FDA requires two studies) and are removing our remaining $100 million in 2015 Laquinimod sales." It adds, "While expectations were low, we believe the results are a disappointment and consensus will now remove the product from its models. Investor focus will shift to the Copaxone litigation which we believe most investors will choose to wait out from the sidelines, further removing for now an incremental buyer for Teva."
JP Morgan analyst Chris Schott told "MarketWatch" that the data were "far from clean" and that there does not seem to be any precedent of other multiple sclerosis drugs being submitted for approval using similarly adjusted data. "While Laquinimod may still be viable, we expect Teva shares to reflect little value for this asset following this morning's release until we receive further clarity from the FDA on the product," he said.
"MarketWatch added, "Several European analysts noted that the data show that laquinimod's marketing potential had dropped considerably. Active Biotech AB (OMX: ACTI; Pink Sheets: ATVBF)will receive a royalty of between 10% and 20% of Laquinimod's sales, with a higher rate in the Nordic and Baltic countries. Laquinimod makes up about 60% of the assets in Active Biotech's product portfolio."
RBC Capital Markets also reiterates its "Outperform" recommendation for Teva, on the grounds that the disappointing Laquinimod trial results do not affect Teva's fundamentals. Analyst Shibani Malhotra doubts that the FDA will now Laquinimod based on the current data, and even if approved, the commercial potential will be relatively small. "We highlight however that we had zero expectations for the drug, so we see no change to our numbers of stock fundamentals." He sees the share weakness as a buying opportunity for investors with a long term investment horizon.
Leumi Partners said, "It is very hard to predict Laquinimod's competitive position, assuming it reaches market at all, since there is insufficient data about competing treatments, and there is still no final assessment about the timing of the laumch Laquinimod and competing treatments under development. Bottom line, the bad news will likely create negative sentiment for the share, but economically, at least according to our model, the effect of the total cancelation of Laquinimod will not materially change Teva's valuation. We believe that the plunge in the share price could create an opportunity to buy shares."
A top analyst told "Globes", "There is no doubt that this was bad news, but the markets seems to have overreacted, reflecting the continuing negative sentiment for Teva, rather than because of any change in the analysts' models for the share."
He added, "After the great disappointment seen in the share following the publication of the effectiveness finding in Laquinimod's Allegro trial in late April, and after Biogen published the effectiveness findings for BG-12, which were better than Laquinimod's, no one expected another great disappointment for Laquinimod, but it happened. Teva's weakness will last a long time.
"The market thought that the worst was behind Teva as far as Laquinimod was concerned, and concern will refocus on other aspects of the company, specifically worries about generic versions of Copaxone and Teva's weak generic sales in the US, as were seen in the past two quarters."
Teva's share price fell 6.2% on Nasdaq yesterday to $43.76, giving a market cap of $41 billion, but recovered slightly by 0.8% in after-hours trading. The share price rose 1.5% in morning trading on the TASE today to NIS 151.20, after falling 7.1% yesterday.
Published by Globes [online], Israel business news - www.globes-online.com - on August 2, 2011
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