Shares of Teva Pharmaceutical Industries (NYSE: TEVA), an Israeli-based developer of brand-name and generic drugs, catapulted 21% during the month of June, according to data from S&P Global Market Intelligence, putting an end to a steady downtrend since roughly last summer. But no one factor was responsible for Teva's hot performance. Instead, it was a combination of four catalysts pushing its stock higher.
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To begin with, on June 7, Teva announced that fremanezumab, an investigational treatment for migraine headaches, met all of its primary and secondary endpoints in both monthly and quarterly dosing in a late-stage trial. When given monthly, fremanezumab reduced the average number of migraine days by 41.6% compared to baseline, while the quarterly dose led to an average reduction of 37% to baseline. There aren't many approved migraine treatments on the market, so there's a decent chance that a Food and Drug Administration (FDA) approval here could generate decent sales for Teva.
Second, on June 12, Teva announced that it had launched a generic version of Merck's (NYSE: MRK) cholesterol-lowering drug Zetia in the United States. Though Zetia has come off patent and saw its sales plunge by 46% during the first quarter of 2017, Merck still reported $334 million in sales in Q1. On an extrapolated basis, we're still talking about a brand-name therapy that could command close to $1 billion in annual sales. Shareholders appear excited that a generic of this blockbuster has been added to Teva's world-leading generic-drug portfolio.
Third, Teva shareholders can thank Wall Street. In mid-June, Teva was upgraded by Mizuho analyst Irina Koffler to neutral from underperform, and the company's price target was lifted to $30 from $25. The rating and price-target change were results of Koffler's opinion that a rival's generic version of Copaxone, Teva's top-selling brand-name injectable to treat multiple sclerosis (MS), won't make it to market in the near term.
Finally, there's been a lack of really bad news. Though Teva's name has been thrown into the mix of opioid producers that have come under fire from U.S. regulators, it's mostly kept its nose clean over the last month. There was little chatter about Teva's debt, generic competition to Copaxone, or tumult at the top, as Teva recently saw its CEO and CFO step down. Sometimes, no news really is good news.
Though June was very kind to Teva shareholders, the company still has a long way to go before it fully regains the trust of Wall Street and investors. Nevertheless, I see reasons to be hopeful.
For example, the company's debt, at $34.6 billion, is frequently cited as a cause for concern. While I'm not satisfied with its debt levels being as high as they are as a shareholder in Teva, I also see a company that's able to pull levers to cut costs and pay down its debt.
Recently, Teva announced its intent to possibly sell its women's health and European oncology and pain divisions. I've opined that these segments could bring in around, or just under, $3 billion if Teva were to move forward with these asset sales.
Teva is also generating in the neighborhood of $1 billion in operating cash flow each quarter. This gives the company the ability to use its cash flow to pay down debt rather than rely entirely on asset sales to reduce debt. That's the sign of a healthy business. And finally, Teva's combination with Actavis should result in an expected $1.4 billion in cost synergies by the end of 2019. There are plenty of levers Teva can pull to reduce its debt.
The company also has done an admirable job of shielding Copaxone from generic competition by utilizing the legal system and by introducing a three-times-weekly injectable formulation. Previous versions of Copaxone were to be injected daily. Teva's Copaxone is a brand-name MS therapy, and Wall Street may be overestimating how much generics will take from the company once they enter the market.
At just seven times next year's profit projections and sporting a 4% yield, Teva, despite its near-term issues, remains a very compelling buy candidate.
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