How Teva Grows 'After The Cliff'

• Teva Pharmaceutical Industries Ltd (ADR) (NYSE: TEVA) shares are down 6 percent since August 25 and have remained below the $70 mark since August 10.
• Deutsche Bank’s Gregg Gilbert maintained a Buy rating for the company, with a price target of $82.
• Although Teva’s EPS could come under pressure as a result of the Copaxone 40mg cliff, Gilbert believes the Allergan Generics acquisition and specialty pipeline launches will help drive growth.

Analyst Gregg Gilbert said that after the recent underperformance, Teva’s shares are poised for growth at yearend and in early 2016. He expects the share price to be driven by:

1. The elimination of the overhang from financing Allergan Generics [AG].
2. Increased visibility into management’s longer-term earnings outlook, with and without the patent expiry on the drug Copaxone 40mg.
3. Updates on the specialty brand pipeline.
4. Closing of the Allergen Generics acquisition, and visibility into the benefits from this.
5. The “potential thematic appeal of generics” against the backdrop of the upcoming election and “ongoing rhetoric” on drug pricing.

Gilbert believes that some investors may have an “overly pessimistic” view of the company’s earnings potential after the Copaxone 40mg patent expiry and the entry of generics in 2017. “The current 2017 consensus EPS of $5.62, which is based on a mix of estimates with and without AG, is likely too low regardless of Copaxone’s fate, in our view,” the analyst added.

Growth after this trough EPS would be led by accretion from the Allergan Generics acquisition and pipeline launches, and this is more important than the size and timing of trough EPS itself, the Deutsche Bank report stated.

“The specialty pipeline story has progressed nicely this year – key developments include best-in-class Phase IIb data for TEV-48125 for chronic and episodic migraine, positive Phase II results for SD-809 for tardive dyskinesia (TD), and regulatory filings for SD-809 for Huntington’s disease (HD) and reslizumab for eosinophilic asthma,” Gilbert wrote.

“Additional read-outs in 2H15 include pridopidine Phase II/III results for HD and SD-809 Phase Ib results for Tourette syndrome,” the report added.