Teva Payout Counters Exclusivity Loss: Israel Overnight

Teva Pharmaceutical Industries Ltd., the world’s largest maker of generic drugs, rebounded from a six-month low as prospects for dividend payments outweighed competition to its top-selling treatment.

Shares of the Petach Tikva, Israel-based company rose 0.2 percent to $37.71 in New York yesterday, after slumping 3.2 percent over the previous three days. The Bloomberg Israel-US Equity Index of the most-traded Israeli companies in New York gained for a second day, led by Partner Communications Co. The shekel rallied 1.3 percent versus the dollar after the Federal Reserve unexpectedly refrained from reducing the pace of monthly bond buying. Israeli markets are closed today for a holiday.

Teva suffered a setback in July, when a U.S. court ruling gave its multiple sclerosis treatment Copaxone less than a year of patent protection. The remedy accounted for about 20 percent of the company’s revenue in 2012. Since then, the stock has fallen 7.4 percent to trade at about 7.5 times estimated earnings, the lowest multiple among the world’s biggest drug companies, which have an average price-to-earnings ratio of 15.5. Still, Teva’s dividend yield is four times higher than that of global peers.

“The dividend is big and, of my coverage list which is predominantly pharmaceutical names, it’s far and away the cheapest stock,” Judson Clark, an analyst at Edward Jones, said by phone yesterday from Des Peres, Missouri. “The dividend offers protection on the downside.”

Cash Flow

CEO Jeremy Levin, who came from Bristol-Myers Squibb & Co., said in December that Teva will use 20 percent to 25 percent of cash flow from operations to pay dividends and will generate as much as $5.5 billion in “organic cash flow” a year until 2017. Teva’s board will continue to review the dividends “frequently,” Chief Financial Officer Eyal Desheh said on a May 2 conference call.

Teva’s free cash flow rose to a record $3.5 billion in 2012 and the company’s current dividend yield of 3.2 percent is bigger than the 0.8 percent for global peers, according to data compiled by Bloomberg.

“It’s a very strong cash flow business and they may even have room to grow the dividend,” Kevin Kedra, an analyst at Gabelli & Co. said by phone from Rye, New York yesterday. “We’re value investors and Teva is by far the cheapest name in the space.”

Teva is trying to reduce its dependence on Copaxone, which generated $1.1 billion in sales in the first quarter. The injection faces competition from pills such as Biogen Idec Inc.’s Tecfidera and the threat of generic copies as early as next year. MS causes the immune system to attack the insulating tissue around nerve fibers.

Teva closed at a 1.3 percent discount to its Tel Aviv-listed shares.

The Bloomberg Israel-US Equity gauge rose 0.1 percent to $97.52. Partner Communications rose 2.3 percent to a three-week high of $7.57 to trade at a 1.6 percent discount to the stock in Tel Aviv.

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