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JPMorgan Downgrades Teva Again

JPMorgan has downgraded Teva to “Underweight”, just two months after downgrading it to “Neutral.”


JPMorgan has downgraded Teva Pharmaceutical Industries Ltd. (NYSE:TEVA; TASE: TEVA) to “Underweight”, just two months after downgrading it to “Neutral”. It also cut the target price by $5 to $38, 2% above yesterday’s closing price on the New York Stock Exchange.”We are downgrading Teva shares to ‘Underweight’ from ‘Neutral’ following the departure of CEO Jeremy Levin and the myriad of uncertainties facing the company.

Teva is in a very challenging position, seeking to largely rebuild its pipeline and transition its business model at the same time its largest franchise (Copaxone) faces significant headwinds. With the unexpected departure of the company’s CEO following a disagreement with Teva’s board, we see added turmoil that has the potential to further delay Teva’s business recovery. Even at current depressed levels (7.5x 2014E EPS), we see far more compelling opportunities elsewhere in the space, and along these lines, recommend investors reduce positions in Teva shares, ” says analyst Chris Schott.

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“Teva is again searching for new leadership at a critical time for the company. We view Levin’s departure as a major setback for the company, coming less than a year after Teva’s newly announced strategic plan, ” adds Schott. “Much of Teva’s senior management has been appointed under Levin and we cannot ignore the risk of additional management churn and an again delayed business recovery as Teva brings in a new CEO.

While Teva more or less articulated “status quo” with no change to its strategic direction during last week’s announcement, we believe any new CEO would want to perform his/her own review of the organization as well as have input into Teva’s ultimate business model. We believe this dynamic further clouds the investment thesis in Teva shares.”

Schott estimates that Copaxone, Teva’s flagship drug for the treatment of multiple sclerosis, will account for over 60% of the company profits in 2013, and that the increase in this reliance as May 2014, when generics could potentially launch in the US, is “particularly concerning”. Although he believes that the approval of generic Copaxone is unlikely, at least in 2014, it is a risk that cannot be ignored.

JPMorgan gave Teva an “Overweight” recommendation for five years, until two months ago. The present downgrade follows downgrades by Goldman Sachs and Morgan Stanley. Last week, JPMorgan cuts its recommendations for Teva’s bonds, citing the company’s worrying liquidity position.


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