Soros Puts Teva Over Microsoft in Winning Stock Strategy

Teva Pharmaceutical Industries Ltd. (TEVA)’s surge to a three-year high is creating a windfall for billionaire George Soros after he lifted the Israeli drugmaker above Microsoft Corp. to become the biggest holding in his fund.

American depositary receipts of Teva rose 7.2 percent to $53 in New York last week after the U.S. Supreme Court agreed to hear an appeal that may delay generic competition to its top-selling multiple-sclerosis drug, Copaxone, until 2015. Teva has generated 1.6 percent of Soros Fund Management LLC’s average 12 return over the past six months, more than double Microsoft’s 0.75 percent contribution.

Teva, which became the Soros fund’s biggest holding at the end of last year, is rallying amid speculation it will fuel profit growth by buying smaller rivals. The Supreme Court decision will help give Teva more cash to spend by protecting the market share of Copaxone, which brings in $3.2 billion in annual U.S. sales.

“It’s another reason for investors to feel bullish at this point,” Larry Peruzzi, a senior equity trader at Boston-based Cabrera Capital Markets LLC, said by phone on April 3. “You follow the smart money flows.”

Michael Vachon, a New York-based spokesman for Soros, and Denise Bradley, a spokeswoman for Teva in North Wales, Pennsylvania, both declined to comment.

While Microsoft has handed a total return of 23 percent over the past six months, Teva has soared 45 percent. The Petach Tikva, Israel-based drugmaker last year had its first annual gain since 2009. The Tel Aviv shares slipped 0.8 percent to 183.8 shekels ($52.77) at the close. The benchmark TA-25 Index gained 0.3 percent.

Sell Ratings

Analysts at JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs Group Inc. abandoned sell ratings on the stock last month, citing Teva’s progress in its push to maintain market share of Copaxone by converting patients to a new, patent-protected formulation of the drug.

The high court justices said they will hear Teva’s bid to revive a patent that would protect Copaxone from generic rivals until September 2015. Without that patent, Teva would lose legal protection this May on Copaxone, which accounts for more than half its profit.

The court’s decision has already diminished the threat of generic competition to Copaxone because it buys Teva more time to convert patients to the new version of its multiple sclerosis drug, said Jason Gerberry, an analyst at Leerink Partners LLC in Boston. The new formula requires three injections a week instead of daily doses.

‘Dry Powder’

“The delay is effectively a win for Teva,” Gerberry said April 3 via phone. “They definitely have a lot of dry powder to utilize for deals, and that’s something a lot of their competitors have been actively doing.”

The company is able to spend as much as $10 billion on acquisitions without affecting its debt ratios, Gerberry said in a March 6 report.

Teva’s spokeswoman didn’t respond to a separate e-mail seeking comment on its acquisition plans.

Actavis Plc agreed to purchase Forest Laboratories Inc. for $25 billion in February, and Mylan Inc. Chief Executive Officer 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.

Teva picked director Erez Vigodman to become CEO on Jan. 9 to lead a drive to cut $2 billion in costs as patents expire on Copaxone. Former CEO Jeremy Levin was ousted in October after a dispute with the board. With the ouster of Levin and the arrival of Vigodman, there has also been speculation that Teva may be acquired, broken up or take part in a merger of equals.

The stock led the weekly gain in the Bloomberg index of the most-traded Israeli shares in New York, which rose 0.3 percent to 117.19.

To contact the reporter on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net

To contact the editors responsible for this story: Tal Barak Harif at tbarak@bloomberg.net Rita Nazareth, Robert Lakin

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