Teva Bearish Bets Jump on Competition: Israel Overnight

Bets on Teva Pharmaceutical Industries Ltd. (TEVA)’s decline are rising to the highest in a year on concern the Israeli drugmaker won’t succeed in blocking competition for its best-selling Copaxone treatment.

Puts with an exercise price 10 percent below Teva shares cost 1.48 times more than calls betting on a 10 percent increase on Jan. 25, according to one-month data compiled by Bloomberg. The gauge known as skew was at the highest since Feb. 6. The Bloomberg Israel-US Equity Index (ISRA25BN) of the largest New-York traded Israeli companies fell 0.4 last week. Mellanox Technologies Ltd. (MLNX) traded at the biggest premium to the Tel Aviv stock since April.

Teva, whose Copaxone injection holds about 40 percent of the market for treating multiple sclerosis, requested last year that the U.S. Food and Drug Administration further scrutinize rival Biogen Idec Inc. (BIIB)’s oral MS drug before clearing it. The FDA is expected to make a ruling by end of March that may see the BG-12 treatment approved, Biogen spokeswoman Kate Niazi-Sai said by phone from Weston, Massachusetts on Jan. 25. Teva has lost 9.5 percent since Dec. 11, when the company unveiled a growth strategy aimed at substituting revenue for Copaxone.

“Sentiment on the shares hasn’t been that great since the investor day,” Gary Nachman, an analyst at Susquehanna Financial Group LP who rates Teva neutral, said by phone on Jan. 25. “The bigger issue for Teva investors in the near term is BG-12, and it certainly seems like it has a very good profile, and that could do a lot of damage in the market.”

Teva’s American depositary receipts were little changed at $37.73 last week after the shares traded in Tel Aviv added 0.3 percent to 141.3 shekels, or the equivalent of $38. The shares in Israel fell 1.3 percent to 139.5 shekels, or $37.48, at the 4:30 p.m. close today. Israel’s benchmark TA-25 Index lost 0.3 percent.

Slower Growth

A delay in the approval of the BG-12 pill would be a boon for Petach Tikva, Israel-based Teva, which depends on Copaxone for about 20 percent of its sales. Teva also faces competition from Novartis AG (NOVN)’s Gilenya as Copaxone loses its last patent protection in 2015.

“We are confident that the review for BG-12 is on track,” Biogen’s Niazi-Sai said.

Teva’s ADRs posted a third consecutive annual retreat in 2012, the longest stretch of declines on record. The company will probably say on Feb. 7 that sales rose 11.2 percent last year, the slowest pace since 2005, according to the mean estimate of 24 analysts surveyed by Bloomberg.

Chief Executive Officer Jeremy Levin failed to alleviate investors’ concerns about the company’s outlook as he unveiled last month a plan to replace revenue from branded drugs set to lose patent protection in the next three years, Nachman said. Levin lowered sales and profit projections for 2013 in November.

More ‘Downside’

“There’s still a lot of pressure in a lot of areas of their business,” Nachman said. “Even though they took down guidance, there’s still more chance of downside than upside.”

Mellanox, the maker of software used to transfer and store data, dropped for a ninth week, losing 0.1 percent to $50.13. The Yokneam Elit, Israel-based company forecast on Jan. 23 first-quarter sales that missed analysts’ projections by as much as 48 percent.

Mellanox’s New York shares traded at a $8.48 premium to the Tel Aviv shares on Jan. 25, the biggest gap since April 19. Shares in Tel Aviv narrowed the difference today, surging 17 percent to 181.8 shekels, or $48.85.

The “stock has potential,” Shebly Seyrafi, an analyst at FBN Securities Inc. who has the equivalent of a neutral rating on the shares, wrote in an e-mailed report Jan. 24. “Mellanox offers the potential to show strong spurts in revenue growth.”

EZchip Semiconductor Ltd. (EZCH) fell 4.2 percent to $32.74 last week after Chardan Capital Markets LLC reiterated its sell rating on Jan. 25 on the shares of the technology company. The stock in Tel Aviv today lost 0.9 percent to 121. shekels, or the equivalent of $32.54.

To contact the reporter on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net

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