Why You Should Hold Your Horses with Teva Pharmaceutical Industries Ltd (ADR) (TEVA) and Valeant Pharmaceuticals Intl Inc (VRX)

TEVA needs a long-term solution after MYL's generic Copaxone approval; VRX works on its debt problem.


Teva’s Long, Winding Road Ahead Just Got a Lot More Complicated

Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) shares took an almost 15% hit yesterday and continue to stumble another close to 3% today after its long-expected nightmare has officially become a frightening reality: Mylan secured FDA approval for its Abbreviated New Drug Applications (ANDAs) for its generic Copaxone injection of 40 mg/mL three times per week as well as its 20 mg/mL QD injection.

Maxim analyst Jason Kolbert is not shocked by the news, as it as he believes the writing on the wall was inevitable, despite the Israeli pharma giant’s best efforts to hold off the competitive front: “Copaxone has been a free cash engine. This has now changed (and ahead of schedule). While Teva has done a masterful job of delaying competition, it’s now arrived.” Now, the Teva team is left to scramble to judge what havoc Mylan’s forthcoming double-trouble generic Copaxone launches will wreak upon Teva’s fourth-quarter earnings, estimating at the bare minimum $0.25.

While Kolbert is not altogether surprised, Mylan threw his expectations a curveball in happening sooner than anyone had expected. “We had anticipated generic copaxone (3x) but not until 2018. The real question now is how will Teva manage its franchise and how much generic erosion shall we expect? Given Mylan’s (MYL – $38.92 – NR) zeal and 7 year battle it’s hard to guestimate how markets hare will play out,” explains the analyst.

Meanwhile, as Teva tries to overcome its debt shackles with a divestment strategy that has led to asset sales from its global women’s health segment for $1.38 billion and PARAGARD for $1.1 billion, hoping to pay down $5 billion in debt by the end of this year, Kolbert cannot help but pose the question: “But are these next steps good enough? We are concerned that selling revenue producing assets is at best a short term strategy and not a long term solution. The fact remains that Teva has $35B in debt and needs to address its capital structure.”

Looking ahead, it is clear that “Teva has a long and tough road ahead that will involve a lot of complex financial engineering,” predicts Kolbert, who concludes, “Generic copaxone now doesn’t help, nor in our opinion does the sale of assets which we see as a stop-gap measure.”

For now, the analyst maintains a Hold rating on TEVA stock without listing a price target. (To watch Kolbert’s track record, click here)

Wall Street backs Kolbert’s cautious stance on the Israeli pharma giant, considering TipRanks analytics showcase TEVA as a Hold. Out of 17 analysts polled by TipRanks in the last 3 months, 2 are bullish on Teva stock, 12 remain sidelined, and 3 are bearish on the stock. With a return potential of 30%, the stock’s consensus target price stands at $21.14.TEVA analyst consensus

Valeant Knows How to Refinance Debt- But Will That Be All It Takes?

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) continues its attempt to rebound while chasing away lingering debt ghosts with this week’s 5.5% senior secured notes offering priced at $1 billion in aggregate principal amount due in eight years- and expected to close somewhere near October 17th. Between the offering’s net proceeds and cash on deck, the troubled biotech giant hopes to fuel repayment of its debt burden, hoping to buy back $1 billion of outstanding notes, including 5.375% notes, 7.000% notes, and 6.375% notes due by 2020. Will borrowing $1 billion be enough to settle repayment so Valeant can crawl out of an overwhelming debt hole?

H.C. Wainwright analyst Ram Selvaraju offers some context: “The newly-issued notes are guaranteed by each of the company’s subsidiaries that is a guarantor under Valeant’s existing credit agreement and the company’s existing senior notes and are to be secured on a first priority basis by liens on the assets that secure Valeant’s credit agreement and existing senior secured notes.”

Following the debt refinancing news as well as this month’s completed iNova asset sale, but needing to see “further operational improvements before we can wax more optimistically on Valeant’s prospects,” the analyst assumes a Neutral rating on VRX stock with a $17 price target, which implies a just under 6% increase from where the stock is currently trading. (To watch Selvaraju’s track record, click here)

“While we are encouraged that Valeant clearly remains able to refinance its debt and has now extended the maturity of yet another tranche out to 2025, we also believe that the priority needs to be reduction of its debt-to-EBITDA ratio and a return to growth […]” explains Selvaraju.

Meanwhile, the analyst comments that he is “still awaiting Vyzulta approval,” expecting the glaucoma drug could garner an NDA in the near future, as early as the end of October. This will matter to Valeant, as Selvraju concludes, “Broadly speaking, we would also point out to investors that new product launches are likely to be crucial to Valeant’s ability to weather both debt maturities and losses of exclusivity, and accordingly substantial delays could prove costly.”

This troubled biotech giant certainly has the Street divided, as TipRanks analytics indicate VRX as a Hold. Based on 14 analysts polled by TipRanks in the last 3 months, 3 rate a Buy on Valeant stock, 8 maintain a Hold, while 3 issue a Sell on the stock. The 12-month average price target stands at $18.83, marking a nearly 31% upside from where the stock is currently trading.Valeant analyst consensus