Israeli generic drug manufacturer Teva (TEVA) was named by the Washington Post as being one of more than a dozen subjects of a price-fixing investigation by 47 US states. The states allege some drug prices were artificially raised more than 300%, as executives communicated in a coded language. Teva has denied the allegations, calling them “devoid of any facts”.
Generic drug makers supply about 90% of subscriptions in the US, but account for only 23% of total spending, according to the Association for Accessible Medicines. Teva is one of the largest generic drug makers in the world, having generated nearly $12.3 billion in its generic medicines segment in 2017 (latest available data). The US market accounted for more than 40% of 2017 segment revenue.
Evercore analyst Umer Raffat commented, “There were 2 tidbits we had dug out in court documents this Fall which suggested that the gx price fixing was taking a turn for the worse. Neither of these 2 tidbits were mentioned in the Washington Post article … this is what really makes me wonder whether things are cooling off and heading towards a settlement. For instance: in our review of court documents from this fall, we noticed that States had secured cooperation from more than one additional co-conspirators (beyond Heritage execs). The identity has not been disclosed publicly as yet. Post did NOT mention this. In addition, we had seen evidence that States are sitting on new evidence of anticompetitive behavior all the way to “at least 2006″ … to me, this expanded scope was the explanation why there had been lack of news on this topic lately: States have been asking for additional discovery period (add’l 6 yrs). Again, none of this was in the Post.”
Net-net, Raffat reiterates an Outperform rating on TEVA stock with $30.00 price target, which implies over 60% upside from current levels. (To watch Raffat’s track record, click here)
But the Street does not share this optimism. Right now, Teva stock has a Hold analyst consensus rating with only 3 recent Buy ratings. This is versus 11 Hold and 1 Sell ratings. However, the average Wall Street price target stands at $23.80, suggesting nearly 29% upsdie for the stock.