Thursday , Oct 8, 1998 Sun-Thu at 18:00 (GMT+3)
Spotlight
Teva Healthy Again
By Amir Eisenberg
Israeli investors are not particularly enthralled by
the Teva share. Several years ago, it was a
favorite among investors, providing them with
high annual returns. However, last year
something bad happened to Teva. Israel's
leading drug manufacturer started to falter.
Teva issued two profit warnings this year, in
which it advised investors in consecutive
quarters that it would not meet analysts'
forecasts. A set of problems facing the company
caused Teva president and CEO Eli Hurvitz to
declare that the second quarter of '98 "was the
worst and most difficult quarter the company
had faced for many years".
It began with problems in the local market,
which accounts for 20% of company revenues.
The General Health Fund, in financial difficulties,
is pressing for price reductions; the Ministry of
Health and the government support the
encouragement of competitive drug imports, and
these two factors have significantly harmed Teva
sales in Israel.
Overseas, Teva suffers from fierce competition
that has severely reduced sales of Clonazepam,
used in the treatment of epilepsy. Moreover,
Copaxone is not fulfilling its promise. The fact
that the Teva share reached the price of over $60
was a result of the Copaxone dream.
The drug, used in the treatment of multiple
sclerosis (MS), was defined by analysts as
having sales potential of millions of dollars. As
time past, the capital market discovered that
Copaxone was penetrating the market at a
slower pace than anticipated, and was
encountering extremely serious competition
from drugs of the world's leading pharmaceutics
manufacturers.
In case these negative parameters eating away
at Teva profits were not sufficient, Dan
Suesskind appeared after the Israeli Stock
Exchange strongly reacted to the publication of
the company's Q1 results (the share plummeted
8% in one day), and told Israeli journalists that
"the Israeli market is stupid". In retrospect, it
became evident that Wall Street reacted
identically to the reports.
Hurvitz, Suesskind and Teva experienced an
uneasy time on the capital market. Investors
threw away their Teva shares as if they were
garbage needing to be disposed of at any price.
In the first half of '98, Teva plummeted 43% from
NIS 202 per share to a rock bottom NIS 117.
The tale of the past two months, however, is
completely different. While the Ma'of index,
headed by Hapoalim-Leumi-Bezeq-Koor shares,
has plunged 20%, there has been an impressive
recovery in the Teva share, which soared 30% in
the same period. The share is currently trading
in the vicinity of NIS 150.
What exactly has caused Teva to skyrocket like
this? A number of positive developments have
occurred in the company recently. First of all, it
should be recalled that the falls Teva posted in
the first half of '98 were far deeper than those of
other blue chip shares. Teva began to be traded
at a discount larger than is normal for the Israeli
Stock Exchange. Teva's shortfall led US
analysts' to discover the company's low value,
and to recommend the share warmly.
Oppenheimer, Gruntal, Warburg, and Lehman
Brothers all issued buy recommendations for the
Teva share in August and September, thereby
assisting the share in rising. Teva also reported
it had received FDA (US Food & Drug
Administration) approval to market Labetalol for
the treatment of high blood pressure, with a
potential market of $95 million.
While this is not a drug that will make any
significant changes to Teva's business, the
approval was given by the FDA following a
prolonged period of time in which Teva was not
granted any approvals. The granting of FDA
approval is therefore much more important for
investors than for the drug itself.
This week, Teva was again prominent. The
company's shares soared 5.5% in Tel Aviv,
while the Ma'of index shed 2.4%. The cause this
time was attributed to the publication of the
financial reports of US company Biogen, one of
the world's largest pharmaceutical
manufacturers. Biogen doubled its profits, and of
significance to Teva, Biogen noted that the key
factor for the jump in sales and profits was the
sharp increase in revenues from sales of
Avonex, the company's drug for the treatment of
multiple sclerosis attacks.
Biogen reported sales of Avonex of $270 million
in the first nine months of the year, which
indicates an annual rate of $350 million. On the
one hand, the Biogen product is regarded as
extremely efficient in slowing down the rate of
uncontrollable attacks in MS patients, whose
disease originates in damage to the central
nervous system. It is probable that Biogen will
take a larger market share than expected, even
at the expense of Teva, which for the first time
posted a token profit from the sale of Copaxone
in the second quarter of '98.
On the other hand, the capital market is
encouraged by the sharp growth in sales of
Avonex, and assumes there will be a similar
scenario at Teva, in Q3 and Q4 of '98.
Following its recovery, Teva is trading on Wall
Street at $37.5, and according to analysts' '99
forecasts, the company is trading at a p/e ratio
of only 16.8. This is an additional reason the
share recently climbed northwards while the rest
of the market wandered south.
Published by Israel's Business Arena October
8, 1998 |
