Bethel Finance: Bernstein: Teva has upside potential

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Bernstein Research believes that Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) still has upside potential, even after rising 28% from its low point in September 2011.

Bernstein analysts Dr. Aaron Gal, Dr. Paul Stephano, and Alan Sonnenfeld give Teva an "Outperform" recommendation with a target price of $55, citing five catalysts that will be concentrated in the first half of 2012.

The first and most important catalyst is Teva's multiple sclerosis drug, Copaxone, which had $2.89 billion in sales in January-September 2011, reportedly accounting for 30-50% of Teva's profits, and is expected to peak in 2012. Competitors have been trying to develop generic versions of Copaxone, and Teva has initiated patent infringement cases against them. Gal believes that decisions will be reached by mid-year, and that Teva has an 80% chance of success. He believes that a positive decision could boost Teva's share price to over $50, but a negative decision will likely knock the stock down to $40 before a rebound. "This is the main risk borne by Teva's investors."

The second catalyst is US Food and Drug Administration (FDA) approval of QNaze nasal spray for the treatment of allergic rhinitis, due on March 24th. Gal estimates that Teva could capture 10-20% of the $2.5-3 billion target market (i.e. $250-600 million), basing the estimate on Teva's 30% of the related steroid inhaler market, through Qvar, which had $350 million in sales in 2011.

The third catalyst is the results of a clinical trial for Nuvigil, a treatment for bipolar depression, due in June. A 10% share of the market is worth $125 million, and could add $0.07-0.20 to Teva's earnings per share. Teva will also have to settle patent litigation with Mylan Laboratories Inc. (NYSE: MYL).

The fourth catalyst is a Cephalon drug, TR-Hydrocodone, a tamper-resitant oral opioid alternative to Oxycodone pain reliever, which is in the final stages of a Phase III clinical trial, after which Teva will file with the FDA. Gal says, "Teva will probably wait for filing before talking about its entry to the $4-5 billion long acting opioid market," and could win 8-10% of the market. He adds that since there is no question about the drug's efficacy, "debate is primarily about the drug's sales potential which will depend in part on FDA's policies on tamper-resistant features."

The fifth catalyst is growing appreciation of Teva's deeper branded pipeline, which the company is targeting for 2015-16. Gal says that Teva will update its pipeline in mid-February to reflect its acquisition of Cephalon, its new CEO will be making the rounds with investors and will be a convincing advocate for the branded programs, and the company is planning an R&D day in September.

Teva's share price fell 1.2% on Nasdaq yesterday to $44.81, giving a market cap of $29.7 billion. The Tel Aviv Stock Exchange (TASE) was closed by strike action today.