3 Reasons to be Bullish on Teva Pharmaceutical

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Teva Pharmaceutical Inudstries Ltd. (NYSE:TEVA) has had a bit of a rough year so far: the first quarter of 2014 seems to have been primarily taken up by Teva’s attempts at winning an ongoing battle to delay generic versions of the company’s top-selling multiple sclerosis drug, Copaxone, a drug which was responsible for more than half the company’s revenue in 2013.

The company also had some hang ups earlier in the year, which lead to FDA investigations into the marketing of both Copaxone and Teva’s Parkinson’s treatment, Azilect. (Update on the status of those investigations if possible?)

Despite all that, many analysts remain bullish on Teva, and there are more than a few good reasons why; while many investors remain understandably concerned regarding Copaxone’s patent expiry, the drug isn’t the only thing Teva has going for it; indeed, it seems as though bright things lay ahead for the Israel-based pharmaceutical company, particularly if you’re in for the long haul. Click through to see our list of the top 3 reasons why you should take a closer look at Teva.

3. Copaxone’s patent expiration isn’t the end of the world

Given the press surrounding the loss of Teva’s suit against the FDA and the impending doom spiraling around Copaxone’s patent expiration, you’d think that Teva was about to sink into oblivion. At every turn analysts and investors seem to be weighing the odds that Teva’s generic rivals will release a copycat drug on Copaxone’s official patent expiry date (this Saturday), despite Teva’s stubbornness to give up its quest for a block on generic versions, and the possible financial consequences to those comapnies should Teva eventually succeed.

Investors fears are understandable. The drug, which was first approved by the FDA in 1997 and remains a leading treatment for multiple sclerosis, comprised a whopping 21 percent of Teva’s revenue in 2013; certainly nothing to sneeze at. But some analysts are optimistic, and claim that Teva will likely recover much more gracefully than the company has been given credit for.

“It looks like Copaxone will have a much longer life than previously thought,” said John Park, co-manager of Jackson Park Capital LLC’s Oakseed Opportunity Fund, in an interview with Bloomberg. “Generics will be approved at some point, but it’s no longer going to be devastating,” Park added.

Teva remains optimistic about (the newer, higher-dose) Copaxone’s chances in part because the drug remains the no. 1 multiple sclerosis treatment in the country; the drug’s two versions together control about 34 percent of the market share. The company added in a statement May 1 that it remains on track to convert 30,000 patients to the newer version of the therapy by the end of May and 40,000 by the end of the year.

“We think that the converted patient base will be sticky, and less likely to move back,” said Randall Stanicky, an analyst at RBC Capital Markets, per Bloomberg.

2. The generics business is booming

Anyone who follows pharmaceutical industry news is well-aware of the dreaded “patent cliff,” a phenomenon in which many of a company’s best-selling blockbusters all reach patent expiry around the same time, thereby leaving the company desperate to approve its latest promising investigational miracle worker. All companies face the patent cliff at one time or another, and part of a company’s job is preparing itself appropriately for those “lean” times between the next big release and the expiration of the last innovation’s patent.

Teva, despite the Copaxone hullabaloo, is pretty well positioned to withstand, and even benefit from, the firestorm of patent expirations ahead. Despite the company’s solid pipeline of investigational medicines coming down the pike, Teva still takes in a sizable chunk of its revenue from generics. And generics profit from patent expirations. With blockbusters like AstraZeneca’s Nexium, Pfizer’s Celebrex, and Novartis’ Sandostatin LAR (to name a few) going off patent, 2014 could be the beginning of something very, very good for Teva, provided it gets its act together.

Even though Copaxone accounted for a bit more than half of Teva’s revenue in 2013, generics aren’t exactly small change to the company, either. According to Teva’s quarterly report, generics accounted for $2.4 billion in revenue during the first quarter of 2014 alone – and that number seems to be rising, the earnings were 3 percent higher than the same quarter a year previous.

“We are pleased with this quarter’s results,” Teva’s CEO Erez Vigodman said in December. “Patients benefitted from significant generic and specialty medicine launches, most notably our Copaxone 40mg in the U.S. Our global generics business delivered increased profitability, and our U.S. generics revenues were up 17 percent year over year.”

At 48 percent of Teva’s first quarter revenue this year, its generics business is just behind Copaxone, and should be a valuable asset in the next couple years.

1. Specialty medicines are on the rise

Teva is primarily associated with its generics business, its true, but the company also happens to have a pretty solid line-up in its branded pharmaceutical pipeline, with 15 different investigational medicines currently undergoing phase III clinical trials.

The results of one of those phase III trials was announced early last month. The drug is an acetaminophen-free hydrocodone formulation, developed to treat patients with moderate to severe chronic back pain. The treatment is unique in that it contains abuse-deterrent properties; abuse is common problem in patients with pain that requires round-the-clock medication, Teva’s press release says.

Further, while generics remain an important part of the company, Teva’s cost-cutting plans mean that the company is scaling back its funding to its generics business, and, presumably is focusing more of its money on its in-development branded medicines. Teva notes that the cost-cutting it has in mind should “improve our generics margin by 10 to 15 percent over five years,” which Teva says, will give the company “much better competitive tools.”

“On the specialty business,” Eyal Desheh, Teva’s former president and CEO said at the JP Morgan Healthcare conference in January, “it’s going to be a great year, a year of harvesting what we’ve done in the past and a year of planting seeds for the future. We’re planning 10 specialty submissions to the FDA and the EMA, and we are anticipating to get six approvals for new products. That’s a lot. That’s more than most large pharmaceutical companies during a single year.” Desheh added.