Teva Pharmaceutical Industries Ltd. (TEVA) tumbled the most last week in New York in 16 months on concern the strategy Chief Executive Officer Jeremy Levin unveiled for the Israeli drugmaker won’t be enough to sustain profit growth.
American depositary receipts of Teva sank 10 percent in the week to $38.10, the steepest slide since the five-days ended August 5, 2011. The slump drove the Bloomberg Israel-US Equity Index (ISRA25BN) of the largest New York-traded Israeli companies down for a second week, losing 1.1 percent to 86.57. Allot Communications Ltd. (ALLT), the Hod Hasharon, Israel-based developer of technology to manage wireless traffic, plunged 12 percent.
Levin, who joined the world’s largest maker of generic drugs in May, presented his growth plan for Teva on Dec. 11 as the company seeks to substitute revenue for its best-selling multiple sclerosis treatment Copaxone amid mounting competition. The CEO said Petach Tikva, Israel-based Teva allocated $1 billion to $2 billion per year to “shareholder return,” while its 2.69 percent dividend yield trails Pfizer Inc.’s (PFE) 3.49 percent and Eli Lilly & Co. (LLY)’s 4.1 percent payouts.
“There’s this Copaxone overhang, and people wanted more details on Teva’s pipeline, and they just didn’t give that,” Todd Bassion, who helps manage more than $1 billion, including Teva shares, at Delaware Investments in Boston, said by phone on Dec. 14. “Investors were hoping they’d have a higher commitment for cash returns to shareholders.”
Teva shares traded in Tel Aviv dropped 3.8 percent at the 4:30 p.m. close to 145.5 shekels, or the equivalent of $38.39, after the ADRs fell to the lowest level since June 22. Israel’s TA-25 Index (TA-25) slipped 0.9 percent to 1,219.46.
Levin, the former senior vice president for strategy at Bristol-Myers Squibb Co. (BMY) said Teva will cut as much as $2 billion of costs in the next five years and focus on small- and mid-sized acquisitions. The CEO said at the Dec. 11 briefing in New York that Teva will use 20 percent to 25 percent of cash flow from operations to pay dividends and will generate $4.5 billion to $5.5 billion in “organic cash flow” per year until 2017.
Gary Nachman, an analyst at Susquehanna Financial Group LLP, which rates Teva ADRs neutral, and Delaware Investments’s Bassion say investors were expecting higher dividends.
“If Teva is not being overly aggressive with acquisitions and there’s a cost-savings plan in place, why can’t they give more back to shareholders?” Nachman said by phone on Dec. 14 in New York. “There are no clear catalysts that might get this stock moving again.”
Teva’s ADRs trade for 7.4 times estimated earnings, the lowest valuation among the world’s 20 biggest drug companies, which have an average price-earnings ratio of 13.6, data compiled by Bloomberg show.
“Teva is a defensive pharma name trading at a significant discount to peers,” said Bassion, co-manager of the Delaware International Value Equity Fund (DEGIX) in which Teva is the largest holding. “The market may be dead wrong about whether Teva can manage the Copaxone transition.” Bassion’s fund has returned 13 percent this year and has beaten 17 percent of its peers, data collated by Bloomberg show.
Copaxone faces competition from newer oral medicines to treat MS and is set to lose patent protection by 2015. The treatment generated $1.05 billion in sales in the third quarter, amounting to 24 percent of total revenue.
Israel, which has a population of similar size to Switzerland, has 54 companies traded on the Nasdaq Stock Market, the most of any country outside the U.S. after China.
Allot fell to $17.12 in New York on Dec. 14. The company’s shares in Tel Aviv sank 12 percent today to 64.67 shekels, or the equivalent of $17.06, the lowest level since Feb. 16.
Wunderlich Securities Inc. reduced its recommendation on the stock to hold from buy on Dec. 13, saying Allot’s profits will grow at a slower pace in 2013 as wireless providers, including AT&T Inc. (T), invest in networks that may not require their technology.
The plunge in the shares spurred Needham & Co. to buy more Allot stock.
“We are aggressive buyers of Allot at these price levels,” Alex Henderson, an analyst at Needham in New York who has a buy rating on the the shares, wrote in an e-mailed note to investors on Dec. 14. The company operates in a category “that is the most insulated from economic conditions -- wireless services,” he wrote.
Orbotech Ltd. (ORBK), the biggest Israeli maker of gear used to test televisions and smartphones, was the biggest gainer on the Israel-US index in the week, adding 5.8 percent to $8.45.
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