Shares of Teva Pharmaceutical Industries (TEVA 1.34%), a developer of brand-name drugs and the largest manufacturer of generic drugs in the world, continued its fairly steady downtrend over the past year and shed another $520 million in market value in April, according to data from S&P Global Market Intelligence. Its ongoing swoon can be tied to three catalysts.
First, Wall Street found out roughly a week ago that Chief Financial Officer Eyal Desheh is leaving the company in the months to come. This departure comes shortly after the resignation of its now-former CEO Erez Vigodman following a bribery settlement in three countries. Keeping Teva on track could be difficult in the months to come with so much upheaval in the executive ranks.
Second, reports have surfaced that Teva is interested in jettisoning some of its non-core businesses. Early in April, Teva was rumored by Bloomberg to be exploring the sale of its women's health unit for as much as $2 billion. A second rumor, also from Bloomberg, suggests that Teva may sell its oncology business, which generated $1.14 billion in sales last year. Normally we'd see companies rally on news of a divestment, but clearly investors are worried that Teva is only undertaking these steps because of its heavy debt load.
Finally, we're probably seeing some earlier-year overhang concerning Copaxone, the company's blockbuster multiple sclerosis injectable drug that generated more than $4 billion in sales last year. Copaxone has pretty much hit the end of the road in terms of patent protection and Teva is doing everything it can to keep generics off the market. Given that Copaxone makes up a good chunk of Teva's profits, the eventual entrance of generics will be a downward catalyst on the company's bottom line.
Although Teva Pharmaceutical wrapped up another disappointing month, I've found plenty of reasons to nibble on shares in my personal portfolio for the past couple of months.
To begin with, the $40.5 billion acquisition of Actavis is going to be transformative for the company over the long-term. By 2019 it's expected to result in $1.4 billion in annual cost synergies, and as the largest manufacturer of generic drugs, I'd opine that it'll improve Teva's pricing power with insurers. Remember, as branded therapies become more expensive, insurers are going to push generics even more than they already do.
Teva has also done an admirable job of transitioning patients and physicians to its extended-release version of Copaxone, which is administered three times weekly as opposed to daily. It's unclear if this will completely shield Teva from generic competition given an earlier patent defeat, but it may just buy the company more time, as well as improve brand engagement with physicians and patients.
With Teva valued at less than seven times Wall Street's profit forecast for 2017 and 2018 and sporting a 3.6% yield, I believe this value stock is worth a closer look.