Clal Finance cuts Teva target price on Copaxone concerns

"The pipeline of innovative drugs is not persuasive enough to fill the vacuum that Copaxone will leave when its patent expires."

"In our opinion, Teva's new strategy reflects a change in direction, the results of which will only be clear in the long term," says Clal Finance analyst Jonathan Kreizman. "In the meantime, the pipeline of innovative drugs is not persuasive enough to fill the vacuum that Copaxone will leave when its patent expires and the pending competition." He adds that Teva's return to investors remains high at 20-25%, which leaves the company stuck midway between a growth company and a value company.

Kreizman mentions several factors which will affect Teva's share. The first is whether the company will be able to build substantial innovative activity in such a competitive market. He estimates that Teva's revenue from innovative drugs will fall by 22% by 2017, belying the company's forecast of stable revenue.

Kreizman says that Teva's forecasts include launches of drugs currently undergoing Phase II clinical trials, which he excludes because of their high uncertainty. He believes that Teva's new strategy on innovative drugs is not what the market expected to hear.

Kreizman also questions whether Teva's plan to cut costs by $1.5-2 billion is realistic. "The slides are clear, but implementation in the field is less so," he says, and offers a more conservative reduction of $700 million in 2015.

Kreizman estimates that Teva's multiple sclerosis drug Copaxone, its most widely sold drug, accounts for 56% of the company's profit. He predicts $3.93 billion in sales in 2013, followed by an 18% reduction in 2014.

Teva is optimistic about its double-dosage Copaxone (40mg), which is injected three times a week, instead of a daily injection. Kreizman estimates that Teva has "a fleeting window of opportunity to switch patients to the triweekly dosage, in an attempt to prevent existing patients switching to BG-12 (Biogen Idec Inc.'s (Nasdaq: BIIB) rival treatment for multiple sclerosis S.H.V.)"

Teva recently petitioned the US Food and Drug Administration (FDA) to block marketing approval for BG-12, claiming that it was liable to cause kidney damage. Kreizman doubts that Teva will be able to prevent approval of the drug.

More than a quarter of Kreizman's new target price of $40 for Teva comes from Copaxone - $11.90 per share.

Teva's share price has fallen 4% since the company published its strategic plan in December. Its current market cap is $32.8 billion.

Published by Globes [online], Israel business news - www.globes-online.com - on January 17, 2013

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