Teva’s Decline Fleeting to Bernstein Amid Board Fix

Teva Pharmaceutical Industries Ltd. (TEVA) is set to rebound from the biggest weekly slump since November as a pledge to overhaul the Israeli company’s board offsets earnings growth concerns, Sanford C Bernstein & Co. said.

While American depositary receipts of Teva, the world’s biggest maker of generic drugs, declined 3 percent last week, the shares are still up 7.1 percent this year. The Bloomberg Israel-US Equity Index of the largest Israeli companies traded in New York retreated 3.1 percent last week

Teva will shrink the size of its board and work to boost the number of directors with global pharmaceutical experience, the Petach Tikva, Israel-based company said in a Jan. 22 statement. New Chief Executive Officer Erez Vigodman is streamlining operations to boost earnings amid setbacks for the company’s multiple-sclerosis treatments. Copaxone faces generic competition this year and Laquinimod, slated to be Copaxone’s successor, failed to win European Union backing last week.

“The announcement to transfer Teva’s board is a highly positive decision,” Ronny Gal, a New York-based analyst at Bernstein who raised his price estimate on Teva by 16 percent last week, said by phone Jan. 24. If the EU decision not to back Laquinimod is temporary, “I see this as a momentary negative setback. I see Laquinimod as potentially worth hundreds of millions in the medium term.”

Teva’s Tel Aviv shares fell 2.5 percent to 149.50 shekels ($42.77) at the close in Israel, closing the largest premium to the company’s New York-traded ADRs since December 2012. The ADRs sank to $42.93 on Jan. 24.

Expiring Patents

Teva’s U.S. stock trades at 9.6 times estimated earnings, the cheapest valuation among the world’s largest generic drug companies, according to data compiled by Bloomberg.

Jeremy Levin left in October after less than 18 months as CEO in a dispute with Chairman Phillip Frost. The company on Jan. 9 chose board member Vigodman to lead a drive to cut $2 billion in costs as patents expire on top-seller Copaxone. The changes come after Levin’s departure fueled concern that the board was rife with internal feuds and meddling in company operations.

The most important thing for Teva to do is bring new drugs to market than can offset generic competition for Copaxone, according to David Maris, a senior research analyst at BMO Capital Markets in New York.

“They have the Copaxone reformulation, and they have other drugs in the pipeline, like Laquinimod,” Maris said in a Jan. 23 telephone interview. “Corporate governance is the umbrella over it all. If they don’t address that, no matter what they do people will look at them skeptically.”

$4 Billion

Copaxone had sales of almost $4 billion in 2012, making it Teva’s biggest-selling product. A U.S. patent protecting the drug until 2015 was invalidated in July by a U.S. Court of Appeals, opening the way for cheaper generic competitors as soon as May.

Teva said last week it agreed to buy NuPathe Inc. for $144 million, outbidding rival Endo Health Solutions Inc. to gain NuPathe’s migraine patch. The purchase will add to Teva’s lineup of drugs to treat central nervous system illnesses.

“They’re taking the right steps to build their generic business,” Maris said. “This shows they’re going to be active and that their business development isn’t just sitting by the way side.”

Denise Bradley, a spokeswoman for Teva in North Wales, Pennsylvania, didn’t respond to an e-mailed request for comment.

The Bloomberg Israel-US gauge declined to 110.38 last week. That compares with a 2 percent weekly drop for Israel’s benchmark TA-25 Index. (TA-25)

To contact the reporters on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net; Elena Popina in New York at epopina@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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