Analysts at JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs Group Inc. are abandoning their sell ratings on Teva Pharmaceutical Industries Ltd. (TEVA:US) as the stock posts its best quarterly rally since 2005.
All three banks raised their recommendations on Teva, the world’s biggest maker of generic drugs, to neutral from sell in the past two weeks as the stock soared to a three-year high in New York trading. The analysts said the company is making progress in its push to maintain market share of its best-selling drug Copaxone while a boom in mergers and acquisitions in the industry yields deals of as much as $21 billion.
Shares of Petach Tikva, Israel-based Teva have rallied 23 percent this year. The stock, the biggest investment in billionaire George Soros’s fund, is the third-best performer on the Market Vectors U.S. Listed Pharmaceutical 25 Price Index after trailing the 21 other companies in the measure in 2013. Mounting concern about the company’s leadership and growth outlook has sent Teva’s valuation to 11 times estimated earnings (TEVA:US), the second-lowest multiple among 15 global generic drug makers tracked by Bloomberg.
“The upgrades are not saying everything is great but, at the valuation it got to” investors are reconsidering their positions, Jacob de Tusch-Lec, who helps oversee about $23 billion in equities at Artemis Investment Management LLP in London, said by phone on March 20. “Essentially things have not gotten worse.”
The Bloomberg Israel-US Equity Index rose 2.5 percent to 119.39 last week, the most since Feb. 14, extending its gain this year to 7.3 percent. The TA-25 Index advanced 0.7 percent at today’s close in Israel, extending its 2014 advance to 4.7 percent.
Leslie Shribman, a spokeswoman for Goldman Sachs, Lauren Bellmare at Morgan Stanley, and Amanda Smith at JPMorgan declined to comment on their analysts’ reports. Denise Bradley, a spokeswoman for Teva in North Wales, Pennsylvania, didn’t respond to an e-mailed request for comment.
JPMorgan has been advising clients to buy Mylan Inc. (MYL:US), the biggest U.S. generic-drug maker, since October 2007. The shares have more than tripled since then. Morgan Stanley rated Perrigo Co. (PRGO:US), a maker of generic over-the-counter medicines, the equivalent of buy on Feb. 4, 2013, before a 50 percent rally.
Teva converted 8.7 percent of 20-milligram Copaxone prescriptions to its 40-milligram version in the week ended Feb. 28, according to Bloomberg Industries. Leerink Partners and Cowen & Co. analysts said the results mean the company may deliver on its plan to get 30 percent to 50 percent of patients on the three-times-weekly injection.
Moving patients to the new version is key because the remaining U.S. patent on the $4 billion-drug expires at the end of May, while the new version will be protected from generic competition until 2030. Teva’s next hurdle will be persuading insurers in the U.S. to continue paying for the branded, three-times-a-week shot once a cheaper copycat of the daily version becomes available.
Fifteen out of the 29 analysts tracked by Bloomberg recommend buying Teva’s shares, the highest level since September. Thirteen analysts have a hold rating, while one says sell, the data showed. The shares declined 1.4 percent to 172.60 shekels, or the equivalent of $49.54, today in Tel Aviv.
A wave of mergers and acquisitions among generic drug companies has also triggered a rally in Teva’s shares, according to Jason Kolbert, an analyst at Maxim Group LLC.
Actavis Plc (ACT:US) agreed to purchase Forest Laboratories Inc. for $25 billion (ACT:US) last month, and Mylan Inc. Chief Executive Heather Bresch said Feb. 27 that the generic-drug maker may make a large acquisition this year. Chief Financial Officer Eyal Desheh said March 4 that Teva is open for deals as the pace of industry consolidation quickens.
“The acquisition of generic companies has now become a very hot topic,” Kolbert, who has a buy rating for Teva, said in a March 20 phone interview from New York. Actavis’ purchase was a “gift” for the Israeli drugmaker, he said. “That was the trigger that got people focusing on Teva.”
Soros Fund Management LLC, the family office of billionaire George Soros, boosted its stake in Teva in the last three months of 2013, making the Israeli drugmaker its largest holding in the fourth quarter.
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