Oppenheimer Casts 3Q Predictions: Teva Pharmaceutical Industries Ltd (ADR) (TEVA), Synergy Pharmaceuticals Inc (SGYP)

Derek Archila thinking twice before ready to bet on Teva's turnaround, but Synergy could bring some upside.


Oppenheimer analyst Derek Archila is saying when it comes to a biotech gamble, third quarter expectations have the analyst finding Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is the far riskier bet than Synergy Pharmaceuticals Inc (NASDAQ:SGYP). Whereas Teva continues to be hard at work to make a comeback, paying down debt by debt, Synergy’s Trulance is making exciting waves, with promising initial trends igniting the launch.

Let’s dive in to see why investors should hold their horses on buying Teva, but could be excited when it comes time to see Synergy’s quarterly earnings momentum (To watch Archila’s track record, click here):

Teva’s 3Q EPS Not Primed to Bring Any “Wow” Factor

Teva is still in the land of trouble as far as Archila eyes this challenged Israeli pharma giant, looking for a “mixed bag” in third quarter earnings. Do not be surprised if Teva cuts back on its guide for the year, says the analyst, who notes in general, he expects investor sentiment to remain dialed up in terms of caution on generics.

“With the majority of its revenue from new generic launches expected in 4Q17, we see limited upside to numbers. With shares trading at ~8.7x our 2018E EBITDA, we think TEVA’s share price reflects a good deal of optimism for what is likely to be a protracted turnaround, in our view,” Archila writes, maintaining a Perform rating on shares of TEVA without listing a price target.

Part of what has kept Teva sentiment in the dark has been lack of clear leadership. As Archila explains, “TEVA stock has been quite volatile over the last several months with the announcement of new CEO advancing shares only to see the majority of gains given back on the approval of MYL’s 40mg Copaxone.”

Even with old head of Lundbeck Kare Schultz brought in to save the day, the analyst says not to expect Schultz to show up to an earnings call until fourth quarter or the beginning of next year. “Until then, it will not be clear on what the future strategy for the company will be and its path to growth. With that said, the focus for investors remains TEVA’s ability to repay debt and improve its balance sheet and whether there is downside to 2018 EBITDA consensus estimates,” opines the analyst.

However, it looks good for Teva to attain its debt repayment objective for the year to hit roughly $5 billion, as the third quarter saw the Israeli pharma giant making strides on amending its leverage ratio requirements. This should hopefully offer Teva some needed “added breathing room as new management tries executing a turnaround.”

Though divestitures have surely allowed Teva to achieve some progress, all the same, the struggling company’s third quarter will not be one that will leave investors impressed, concludes Archila.

Wall Street is largely right there with Archila on the sidelines, with TipRanks analytics revealing 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 32%, the stock’s consensus target price stands at $20.88.

Synergy’s Trulance Sales to Fire Up in 4Q

Synergy is estimated to release its third quarter results for the year in about a month from now, and Archila is out setting confident expectations on the drug maker, especially thanks to Synergy’s chronic idiopathic constipation (CIC) asset Trulance. With Symphony scripts pointing to around 23,000 Trulance prescriptions in the third quarter, and anticipating gross-to-net discounts ranging around 40%, the analyst projects sales to circle $5 million, helping Synergy to either “meet/beat Street expectations in 3Q17.”

Looking for a strong third quarter print, the analyst reiterates an Outperform rating on SGYP stock with a price target of $6, which implies a close to 76% increase from where the shares last closed.

Offering some context, Archila underscores Synergy’s second quarter, where the drug maker recorded around $1.5 million in deferred revenue to come to fruition down the line. “This could provide further upside to our/Street numbers if the company realizes all or even a portion of this deferred revenue in 3Q17,” highlights Archila, who already likes what he sees with Trulance’s set-up: “Early trends remain encouraging regarding the Trulance launch, and in the last several weeks of 3Q17, we have begun to see a slight inflection in scripts. We continue to expect Trulance sales to accelerate in 4Q17. For 3Q17, we expect investors will be paying close attention to SGYP’s SG&A expense since 2Q17 came in well head of estimates.”

However, the analyst predicts more expenses to hit Synergy’s way than the consensus estimate of around $48 million, forecasting along the lines of $52 million. Though Synergy just agreed to financing terms with CRG to gain access to about $300 million in prospective capital and runway that should last through 2020 under Archila’s calculations, “we are not completely certain the company can reach its break-even target of 2019.” With the operating expense estimates Archila has in mind, Synery would need to bring in sales “north” of $250 million in two years, with the analyst predicting $145 million, for the drug maker to break even, and this “seems aggressive to us.”

“With that said, we believe the additional capital gives SGYP the runway for the next 12-18 months to execute on the Trulance launch to see where they can take the brand,” Archila contends.

In twelve years, the analyst angles for Trulance to generate roughly $695 million in peak sales.

Most on Wall Street join Archila in betting on this biotech player, as TipRanks analytics showcase SGYP as a Buy. Based on 6 analysts polled by TipRanks in the last 3 months, 5 rate a Buy on Synergy stock while 1 issues a Sell. The 12-month average price target stands at $8.58, marking a nearly 152% upside from where the stock is currently trading.