Healthcare Business

Why Goldman Sachs Sees Serious Upside for Teva for 2016

Teva Pharmaceutical Industries Limited (NYSE: TEVA) had a very hard time getting off the ground from 2011 through the start of 2014. This is the world’s top generic drug maker, and shares have gained handily from those doldrums years. Now the bulge bracket brokerage firm Goldman Sachs sees a potentially huge 2016 for Teva now that its shares have handily pulled back from their highs earlier this year.

If one firm on Wall Street can drive investor interest via an analyst upgrade, that would probably be Goldman Sachs. Jami Rubin and her team at Goldman raised the firm’s rating to Buy from a prior Neutral rating.

As a reminder, Teva was maintained as one of the 24/7 Wall St. 10 Stocks to Own for the Next Decade. That status has not changed during the malaise in the specialty pharma sector of late.

The team noted that Teva shares are down roughly $10 from their 2015 peak, in part due to overhand from a $7 billion equity offering and in part due to concerns over its copaxone for multiple sclerosis. The pullback in other pharma and specialty pharma stocks has also created a weight on Teva’s share price.

Monday’s report on Teva from Goldman Sachs noted several positive issues that should draw the interest of investors. One is that Teva is now valued at close to 10 times expected 2016 earnings per share. That was 11.5 times forward earnings a year ago, and the view is actually improving now versus then.

Goldman Sachs believes that copaxone will outperform peers with volume either flat or growing. The firm believes that there are some intrinsic barriers that will help copaxone. It also believes that the January 2017 launch of competition will be balanced by Teva being able to quantify its downside risks.

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Another driving force is the pending acquisition of Allergan’s generic business. That is believed to help Teva further dominate the generic drug market.

Teva’s branded drug pipeline is also viewed as being strengthened  with the CGRP (calcitonin gene-related peptide) antibody being potentially a best-in-class asset for Teva. While the branded pipeline launches may still be 2 or 3 years out, SD-809 for the treatment in Huntington Disease was also talked up. Goldman Sachs said:

While new significant pipeline launches are still 2 to 3 years away, we expect clinical data points (starting in mid-2016) to drive increased confidence, leading to the potential for P/E expansion.

Lastly, there is a potential protection from the current climate of political pressure here at Teva. Jami Rubin’s report said that the team’s own internal analysis on generic pricing suggests that the majority of Teva’s base business is not exposed to large price increases. This would insulate Teva from specialty pharma risks tied to price gouging.

Goldman Sachs now has a $75.00 price target on Teva, and Teva shares were trading up 1% at $62.35 in mid-Monday trading. Its 52-week trading range is $54.17 to $72.31, and that $75 target price from Goldman is actually about $2.00 short of the consensus analyst price target at Thomson Reuters —  and it is supposedly $25 shy of the street’s highest $100 analyst price target.

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