TEVA - Teva Pharmaceuticals

[Palantir]

What do you value Teva at and how are you reaching your valuation?

 

My opinion is that given how Teva is a serial acquirer, we need to consider its acquisitions a form of CapX, as they are similar to R&D in that they are everpresent, and so its a mistake to look at them as onetime events. If you do that, then Teva's valuation changes dramatically.

[FrankArabia]

Won't give you a price target valuation on it but I will say i'm expecting to make 15% of off my invested capital overtime. I have bought in the range of 38-41. i'm still learning about the company everyday.

 

In terms of TEVA being a serial acquirer, that is true of the past. Recently appointed CEO J. Levin does not appear to want to do anymore significant acquisitions as he is trying to milk organic growth out of the current company. I think he realizes that TEVA has become quite gigantic and there needs to be a lot of restructuring to get the company to work.

 

In terms of you expensing acquisitions I don't personally agree. The reason is the acquisitions were done to enhance the competitive position of the firm (consolidate competitors) and to diversify its revenue base (from generic to specialty medicines). Had they not undertaken the acquisitions, their organic growth is just fine.

 

If you assume they will undertake similar acquisitions (recurring capex), you can do so. Let me know what the result is. I just don't think that is the right way to approach it.

 

 

[Palantir]

 

In terms of you expensing acquisitions I don't personally agree. The reason is the acquisitions were done to enhance the competitive position of the firm (consolidate competitors) and to diversify its revenue base (from generic to specialty medicines). Had they not undertaken the acquisitions, their organic growth is just fine.

 

 

 

That's a fair comment, if they're just rolling up competitors, then it won't necessarily mean serial acquisitions in the future. I'll definitely have to look deeper into their competitive strategy.

[FrankArabia]

If you look at their major recent acquisitions Barr, Taiyo, Ratiopharm, they basically bought up the marketplace to become the number 1 competitor.

 

In generics, scale matters. Once you eliminate a major competitor another one is unlikely to pop up again due to economies of scale, know how, distribution, regulatory hurdles. The newest generic guys are actually coming out of India but they can't leverage their operations internationally due to the aforementioned factors.

 

The question is, did TEVA overpay and from my assessment yes they did based on historical multiples. However, if you can buy TEVA at current prices, what they paid historically doesn't make a difference especially given the recent management change where the CEO specifically outlined that major acquisitions were not on his radar. He is going to streamline operations and milk out growth from their fortress of operations around the world.

 

TEVA is really a turnaround story as much as INTC (getting into mobile and pick up in PC again). i like both these stocks at current valuations and potential for dividend increases and sharebuybacks. however, it won't happen over 12 months time so you got to be patient.

 

[no_free_lunch]

Teva is still looking pretty cheap, especially in comparison to market at large.

 

From what I have seen the new CEO has potential.  I like that his background is in pharma, both career and education.  For technology companies I really believe you need to have someone who understands the technology as it's not all just numbers.  Only time will tell but he had a good reputation at BMY, he is talking about reining in spending and focusing on a certain core set of products, he wants to shave $1-2 B off of expenses, he pissed analysts off by not getting his strategic review done as fast as they would like (to me that is a big positive).  Who knows, maybe I'm being sucked in by conjecture but in this case change is definitely needed.

 

I also have read several analyst papers where they describe the stock as dead money in the short run but good value is you are willing to wait several years.  That suits me perfectly.

 

The generic pipeline potential seems significant, I know that they don't get the same margins as in branded but if you compare their margins to pfizer or merck they are actually quite comparable in spite of 50% of sales being generic. 

 

In regards to generics, I found this in their quarterly report, in regards to US generic applications:

 

"We expect that our revenues in the U.S. will continue to benefit from our strong generic pipeline, which, as of October 19, 2012,

had 143 product registrations awaiting FDA approval, including 40 tentative approvals. Collectively, the branded versions of these

143 products had annual U.S. sales exceeding $84 billion."

 

I just have no idea what kind of percentage of those sales you could expect them to receive.  Still, Copaxone drug going off patent is $4B, so if they could even get $2-3B, that would help to level the ship.

 

I have also read that fears of Copaxone going off-patent may be overblown.  To paraphrase the one analysts explanation, MS is a very serious disease and doctors are not just going to jump on a generic drug simply because it is cheaper.  It will take time for the generics to prove themselves and this may include additional studies before doctors will start switching patients over.  According to one analyst, even reproducing the chemical is not straight-forward and the competitors drug may not be exactly the same.  So it is not necessarily the case that come September 2015, sales of copaxone go to 0.  They will decline over a period of years (?).  I guess I don't know enough about pharma and generics to understand the speed at which this would happen.

 

It was stated earlier that Copaxone makes up 40% of earnings.  Given that it's sales are only 20% I wonder how that number is arrived at?  Are the margins really that much higher?

 

Since the 08 crisis, I am always trying to stay diversified and if you look at the charge Teva was almost completely unaffected by the 2008/2009 crisis.  Maybe they have more debt now and they could be affected were it to reoccur but at least it passed the first test.

 

My conclusion, superficial as it may be, is that the stock is cheap especially compared to the market at large.      In 2010/11 the stock was trading in the 50-60 range, if management can just convince the market that earnings will stabilize and ultimately grow again, could we not get back there again?  Earnings should stabilize in the $5 range, if we can get a 12 PE, that is $60 or a 62% upside.

[FrankArabia]

margins on copoxone is roughly 90% as disclosed in their investor presentation on Dec 11....that's how you get to that figure more or less....i have been adding to this name.....its dead money because people are uncertain on the outlook for MS and pricing competition for generic as whole (though this is not reflected in other generic manufacturers like Watson/Mylan).

 

I valued this company based on them losing all of their MS client base and i still come up with a low to mid teen p/e ratio for a company with a dominant position.

 

we'll see how this one plays out but permanent downside I don't see at the moment.

 

FYI, I have absolutely no background in pharmaceuticals or reading clinical trial results.

[no_free_lunch]

You are correct on the margins.  I did some more digging today and some analysts peg coxapone at 50-60% of earnings.  That will hurt.  I also need to retract my statement on their margins being comparable to other pharma companies, they are actually 15-20% lower.

 

With all that being said, I agree that they are more or less priced as though copaxone disappears with only partial replacement.  Obviously that is a possibility but every company has it's challenges.  I think that given the companies background, and given cost cutting initiatives they should be able to get their EPS up to the $4 range, with $5 not being out of the question.  Depending on how optimistic mr market is feeling about pharma, that could put the price anywhere from $40-$70, with a 2-3 year time frame.  I admit these are pretty crude estimates and I should be looking at acquisition costs and cash flow but it is enough that I probably won't pursue this one.

 

That being said I bought the $40 2015 calls.  At $3.20 they seem like a good deal.  Most analysts / board posters are of the opinion that it goes nowhere until well into 2015 but I am willing to bet otherwise.  These things have a tendency to rise before all of the evidence is in.  We will see.

[SI]

N_F_L,

 

Optically Teva is quite cheap but only on near term numbers, when you stretch it out it is less so. Have you thought about it through the following lens?

 

-On consensus(5 contributors) 2017 numbers(chosen as the year EPS goes back up post Capoxone) the stock is trading at 6.78x earnings.

-Target trades at 7.75x 2017. Mgmt has publiclly targeted $8 by 2017.

-IBM I think is $23/share in EPS by that time frame assuming they get to their $20 by 2015 and have below average earnings growth(7%) implies 8.65x.

 

Would you rather own the earnings yield of Teva at 15% or IBM at 12% at that point?

[no_free_lunch]

Well I think we are actually agreeing as I decided in the end not to pursue it, read my last post.  My only stake is a small amount in 2015 $40 calls which I think have good risk/reward.

 

That being said, wouldn't the entire pharma sector be considered expensive on your analysis?  Your comparison is not apples to apples, a company like target would get hammered pretty hard in a deep recession.  Teva would get hit too but not to the same extent. 

 

IBM is a good buy, better than Teva in my opinion.  However, they are heavily leveraged to corporate spending as well.  I think though they will also face increased competition going forward.

[worldaccordingtoGARP]

Anyone out there still following or in this company?  I recently posted my thesis on SumZero and there was one other excellent writeup that came through there the next day:

 

https://sumzero.com/pro/research/7369 (mine)

 

https://sumzero.com/pro/research/7315

[krazeenyc]

I actually have quite a large position in TEVA -- appx 6%. I got an excellent entry price ($36-39) which is the only reason it is not down. It's been a pretty lousy investment so far. I like it mainly b/c I think the downside is so limited. The one big knock is that TEVA is likely to be dead money until the Copaxone story gets to play out. I expect TEVA to break out - like PFE broke out after Lipitor went off patent and people realized the company was just fine.

 

I think there is a double Copaxone discount -- one for the BIIB threat and the other for generic competition.  This double discount doesn't make sense it's as if people are assuming they're going to lose 130% of sales of Copaxone.  To put it another way, I believe if TEVA didn't have Copaxone at all -- it's stock would be trading around where it is now or higher. Copaxone is not worth 0.

 

Upside also exists if generic copaxone is difficult to produce or rejected by the FDA, TEVA is successful in transitioning people to x2 copaxone dosage (i sorta hate how this is legal -- but it's good for TEVA), or if Tecfidera doesn't grow as strongly over the long term as expected. I'll take a look at those sumzero articles when I get the chance. thx.

 

[xtreeq]

CEO Jeremy Levin stepping down

 

http://www.reuters.com/article/2013/10/30/tevapharm-ceo-idUSL5N0IK1NB20131030

[krazeenyc]

CEO jeremy Levin stepping down

 

http://www.reuters.com/article/2013/10/30/tevapharm-ceo-idUSL5N0IK1NB20131030

 

The stock dropped about 2 % on the rumors on Monday of Levin possibly stepping down while feuding with Frost. It is now down about 10% on this news.

 

The hits just keep on coming for TEVA. This has been my worst large investment over the past few years -- and is not sitting right around my cost basis ($37.50 minus dividends).  I still think there is a lot of upside due to the following:

 

1) A lot of fat cutting can be done to make the business more lean and efficient (this was one of the supposed disagreements between Frost and Levin as Levin wanted to cut the Israel jobs more slowly -- they apparently got a lot of political pressure to not cut jobs in Israel)

 

2) Copaxone upside ... right now the stock bakes in all the worst news (there is a lot of optionality there).

 

3) Pipeline -- the market assigns almost 0 value to the Teva pipeline.

[xtreeq]

JP Morgan downgrade of TEVA bonds based on liquidity concerns:

 

http://www.globes.co.il/serveen/globes/docview.asp?did=1000890233

[worldaccordingtoGARP]

I have a decently sized position in TEVA and really like Levin. I was rather surprised by the news. Levin's track record at Novartis and Bristol was always judged as phenomenal and actually has been proven even better over time. I think this article in Globes, called "Teva's Identity Crisis" perfectly captures the problem Frost had with Levin (http://www.globes.co.il/serveen/globes/docview.asp?did=1000890701):

 

I venture to say that the problem was not Levin's style or disagreement over the form that layoffs would take or how Israeli the company should be, but the continuing fall in its share price - 11% from the date of Levin's appointment to today, although in fairness it should be mentioned that 6% of the fall was caused by Levin's dismissal. The board saw the decline as reflecting the market's lack of faith in Levin's strategic plan and in the man himself. The board approved Levin's strategy and signed off on it, and since then the strategy has still not been given an opportunity to succeed or fail. Had the market signaled acceptance of the new strategy, the board would probably have allowed it to proceed to the end.

 

Teva has been in a difficult position to "please" markets considering all headlines continue to focus just on Copaxone. In the timeframe afforded Levin, this was a no-win situation. It frustrates me that Frost clearly did not see things this way.

[no_free_lunch]

Thanks for the update.  This short-term pandering to equity markets is very discouraging.  Nevertheless, the risk reward still appears above average, especially in current markets.  I will hold my shares.

[xtreeq]

Teva asks U.S. justices for stay in Copaxone case

 

http://www.reuters.com/article/2013/11/04/usa-court-patent-idUSL2N0IP1LL20131104

[xtreeq]

I have a decently sized position in TEVA and really like Levin. I was rather surprised by the news. Levin's track record at Novartis and Bristol was always judged as phenomenal and actually has been proven even better over time. I think this article in Globes, called "Teva's Identity Crisis" perfectly captures the problem Frost had with Levin (http://www.globes.co.il/serveen/globes/docview.asp?did=1000890701):

 

I venture to say that the problem was not Levin's style or disagreement over the form that layoffs would take or how Israeli the company should be, but the continuing fall in its share price - 11% from the date of Levin's appointment to today, although in fairness it should be mentioned that 6% of the fall was caused by Levin's dismissal. The board saw the decline as reflecting the market's lack of faith in Levin's strategic plan and in the man himself. The board approved Levin's strategy and signed off on it, and since then the strategy has still not been given an opportunity to succeed or fail. Had the market signaled acceptance of the new strategy, the board would probably have allowed it to proceed to the end.

 

Teva has been in a difficult position to "please" markets considering all headlines continue to focus just on Copaxone. In the timeframe afforded Levin, this was a no-win situation. It frustrates me that Frost clearly did not see things this way.

 

I think this is a good summary from the point of view of an outsider - i.e. a non-Israeli. As someone who has some closer knowledge - in general, from actually working with top Teva management on 3 continents 5+ years ago, and from constant interaction with current and former Teva employees, let me try to add a layer of depth for the benefit of the board; I apologize in advance for the succinct summary of Teva's history for those who have been following the company but I feel this is one of the times where understanding the "soft" side of a company - its management and culture - is important.

 

Teva current "problems" have been brewing for the better part of a decade (if not longer) and have been exacerbated by recent events and by the ongoing failure of both the BOD and the CEO to act. Teva's legendary CEO/CFO duo of Hurvitz and Ziskind came to Teva in the mid 70s; in the 80s Teva received FDA approval to market generics in the US and with typical Israeli can-do attitude, "chutzpa" and a good base of low-cost Israeli chemists, biologists and engineers they built a low-cost, high volume generics company that developed a specialty in breaking patents issued to Ethical (i.e. original) companies, thus garnering a 6-month exclusivity period that allowed the company to rake in profits on hundreds of different drugs.

 

Teva's "Midas moment" was the discovery of Copaxone by Israeli scientists. It received FDA approval in 1996 and from that point Teva, which had hitherto only consolidated the Israeli pharma market (in the 80s), had the ever-growing cash-cow (bolstered by the arrival of Azilect in 2005) to control its destiny. It is at this point that the original sin was committed - instead of using the cash-flow from its ethical drugs to aggressively finance university research and the myriad pharma start-ups in Israel and become the de-facto distribution conduit of all Israeli pharma, it decided to focus on inorganic growth, attempting to purchase presence in markets and leverage its size and relationships in markets to offset the ever increasing competition in generics from countries like India.

 

Teva went on a gluttonous shopping spree: it bought Novopharm in 2000, SICOR in 2004 for 3.4 bn USD, IVAX in 2005 for 7.4 bn USD, BARR in 2008 for 7.5 bn USD, Ratiopharm in 2010 for 3.6 bn EUR and then Infarmasa, TAIYO and Cephalon in 2011 for more than 8 bn USD combined. The result - Teva transformed from a small, clearly Israeli, nimble low-cost operator to a huge, global company with factories in 40+ countries and operations literally anywhere drugs are sold; moreover, the shareholder base changed as the stock got listed in the US and as acquisitions were partially financed with Teva shares, so men like Frost came to have significant stock holding and a seat at the BOD.

 

While Hurvitz and Ziskind were at the helm, the perception (and in many ways the reality) was that Teva was an Israeli company - upper management was overwhelmingly Israeli and those who were not were usually both compatible with the culture at Teva and responsible for specific markets - e.g. Bill Marth when he headed Teva USA. Hurvitz retired in 2002 but was Teva's de-facto leader and personally picked (and fired) CEOs. Once he began battling cancer Frost became de-facto Chairman and then actual Chairman in 2010.

 

I'm pretty sure the BOD was well aware by this time of their time-bomb – Copaxone's exclusivity about to end and no Rx pipeline to speak of and they decided to implement drastic measures – they brought in Levin, a foreigner, as CEO. Moreover, I assume that he was given free reign as he proceeded to assemble his own team, and in the process he fired, marginalized or forced retirement on almost all the senior Israeli executives. Whatever he may have or not have done these actions severely damaged the trust Teva had from the people in Israel – as THE Israeli company. You can rest assured that middle management was also not thrilled to discover that they had new bosses that had not a clue about what made Teva's culture so successful. The fact that Teva was in the papers constantly over the past as the example of a company keeping profits offshore in order to avoid taxes also did not help.

 

After 2 years at the helm with no success, with Copaxone's exclusivity nearly at an end and with pressure from US institutionals to revive the languishing share price, the BOD, likely against the wishes of Levin, decided on massive cuts. Levin objected but instead of quitting he tried to finesse things. This was his mistake – whilst there was infighting, the plans leaked and there was almost palpable shock in the country – Teva firing?!? Teva's feeble and amateurish attempts to refute the plan, despite the press having written internal Teva documents to that effect, only damaged the company's image further. The Israeli employees went on strike and while many of them have since resumed working I know fist hand that in the chemical plants batches of active pharmaceutical ingredients (API) with an ultimate value in the tens of millions of dollars were ruined.

 

What is worse, the trust between the company and its employees was broken or at least severely strained and Israelis have a very long memory – nowadays fresh graduates think twice about going to work for Teva and this is a huge problem because Teva is known in Israel for paying low wages but for being a safe place to work (=no layoffs) – now that this assumption has been violated, people will demand more money to work at Teva.

 

So now Teva is a battered ship - whoever the BOD brings in to replace Levin will have no wiggle room, public trust or time to implement changes and I fear only a fool would take the job, definitely not someone with Levin's stature and experience. I think the only solution in the long term is for the BOD to oust Frost (he should likely be gone as Chairman after his second 3-year tenure is up in 2016), and get new leadership with a clear and executable strategy. Until that time, I would not invest in Teva.

 

Disclosure: I have no position in Teva at this time

[krazeenyc]

I have a decently sized position in TEVA and really like Levin. I was rather surprised by the news. Levin's track record at Novartis and Bristol was always judged as phenomenal and actually has been proven even better over time. I think this article in Globes, called "Teva's Identity Crisis" perfectly captures the problem Frost had with Levin (http://www.globes.co.il/serveen/globes/docview.asp?did=1000890701):

 

I venture to say that the problem was not Levin's style or disagreement over the form that layoffs would take or how Israeli the company should be, but the continuing fall in its share price - 11% from the date of Levin's appointment to today, although in fairness it should be mentioned that 6% of the fall was caused by Levin's dismissal. The board saw the decline as reflecting the market's lack of faith in Levin's strategic plan and in the man himself. The board approved Levin's strategy and signed off on it, and since then the strategy has still not been given an opportunity to succeed or fail. Had the market signaled acceptance of the new strategy, the board would probably have allowed it to proceed to the end.

 

Teva has been in a difficult position to "please" markets considering all headlines continue to focus just on Copaxone. In the timeframe afforded Levin, this was a no-win situation. It frustrates me that Frost clearly did not see things this way.

 

I think this is a good summary from the point of view of an outsider - i.e. a non-Israeli. As someone who has some closer knowledge - in general, from actually working with top Teva management on 3 continents 5+ years ago, and from constant interaction with current and former Teva employees, let me try to add a layer of depth for the benefit of the board; I apologize in advance for the succinct summary of Teva's history for those who have been following the company but I feel this is one of the times where understanding the "soft" side of a company - its management and culture - is important.

 

Teva current "problems" have been brewing for the better part of a decade (if not longer) and have been exacerbated by recent events and by the ongoing failure of both the BOD and the CEO to act. Teva's legendary CEO/CFO duo of Hurvitz and Ziskind came to Teva in the mid 70s; in the 80s Teva received FDA approval to market generics in the US and with typical Israeli can-do attitude, "chutzpa" and a good base of low-cost Israeli chemists, biologists and engineers they built a low-cost, high volume generics company that developed a specialty in breaking patents issued to Ethical (i.e. original) companies, thus garnering a 6-month exclusivity period that allowed the company to rake in profits on hundreds of different drugs.

 

Teva's "Midas moment" was the discovery of Copaxone by Israeli scientists. It received FDA approval in 1996 and from that point Teva, which had hitherto only consolidated the Israeli pharma market (in the 80s), had the ever-growing cash-cow (bolstered by the arrival of Azilect in 2005) to control its destiny. It is at this point that the original sin was committed - instead of using the cash-flow from its ethical drugs to aggressively finance university research and the myriad pharma start-ups in Israel and become the de-facto distribution conduit of all Israeli pharma, it decided to focus on inorganic growth, attempting to purchase presence in markets and leverage its size and relationships in markets to offset the ever increasing competition in generics from countries like India.

 

Teva went on a gluttonous shopping spree: it bought Novopharm in 2000, SICOR in 2004 for 3.4 bn USD, IVAX in 2005 for 7.4 bn USD, BARR in 2008 for 7.5 bn USD, Ratiopharm in 2010 for 3.6 bn EUR and then Infarmasa, TAIYO and Cephalon in 2011 for more than 8 bn USD combined. The result - Teva transformed from a small, clearly Israeli, nimble low-cost operator to a huge, global company with factories in 40+ countries and operations literally anywhere drugs are sold; moreover, the shareholder base changed as the stock got listed in the US and as acquisitions were partially financed with Teva shares, so men like Frost came to have significant stock holding and a seat at the BOD.

 

While Hurvitz and Ziskind were at the helm, the perception (and in many ways the reality) was that Teva was an Israeli company - upper management was overwhelmingly Israeli and those who were not were usually both compatible with the culture at Teva and responsible for specific markets - e.g. Bill Marth when he headed Teva USA. Hurvitz retired in 2002 but was Teva's de-facto leader and personally picked (and fired) CEOs. Once he began battling cancer Frost became de-facto Chairman and then actual Chairman in 2010.

 

I'm pretty sure the BOD was well aware by this time of their time-bomb – Copaxone's exclusivity about to end and no Rx pipeline to speak of and they decided to implement drastic measures – they brought in Levin, a foreigner, as CEO. Moreover, I assume that he was given free reign as he proceeded to assemble his own team, and in the process he fired, marginalized or forced retirement on almost all the senior Israeli executives. Whatever he may have or not have done these actions severely damaged the trust Teva had from the people in Israel – as THE Israeli company. You can rest assured that middle management was also not thrilled to discover that they had new bosses that had not a clue about what made Teva's culture so successful. The fact that Teva was in the papers constantly over the past as the example of a company keeping profits offshore in order to avoid taxes also did not help.

 

After 2 years at the helm with no success, with Copaxone's exclusivity nearly at an end and with pressure from US institutionals to revive the languishing share price, the BOD, likely against the wishes of Levin, decided on massive cuts. Levin objected but instead of quitting he tried to finesse things. This was his mistake – whilst there was infighting, the plans leaked and there was almost palpable shock in the country – Teva firing?!? Teva's feeble and amateurish attempts to refute the plan, despite the press having written internal Teva documents to that effect, only damaged the company's image further. The Israeli employees went on strike and while many of them have since resumed working I know fist hand that in the chemical plants batches of active pharmaceutical ingredients (API) with an ultimate value in the tens of millions of dollars were ruined.

 

What is worse, the trust between the company and its employees was broken or at least severely strained and Israelis have a very long memory – nowadays fresh graduates think twice about going to work for Teva and this is a huge problem because Teva is known in Israel for paying low wages but for being a safe place to work (=no layoffs) – now that this assumption has been violated, people will demand more money to work at Teva.

 

So now Teva is a battered ship - whoever the BOD brings in to replace Levin will have no wiggle room, public trust or time to implement changes and I fear only a fool would take the job, definitely not someone with Levin's stature and experience. I think the only solution in the long term is for the BOD to oust Frost (he should likely be gone as Chairman after his second 3-year tenure is up in 2016), and get new leadership with a clear and executable strategy. Until that time, I would not invest in Teva.

 

Disclosure: I have no position in Teva at this time

 

Would TEVA ever consider leaving Israel -- maybe not completely but... become a non-Israeli company? (I think your last paragraph is the reason the stock is down so dramatically). My thesis generally with these companies that are losing a big blockbuster is that there is generally so much fat in them -- especially at a company like TEVA (that generally do not lay people off) -- that the cost savings can almost make up for the huge drug. I think at this point, the stock is priced for Copaxone revenues by mid 2014 to be near 0, but in reality the chance of Copaxone generating significant revenues for the next few years is significantly greater than 0 (not sure how much greater though). If TEVA just cut out all the fat in the company, it should be worth significantly more than it is today.

 

The Israeli employees went on strike and while many of them have since resumed working I know fist hand that in the chemical plants batches of active pharmaceutical ingredients (API) with an ultimate value in the tens of millions of dollars were ruined. Were they destroyed? or simply wasted b/c employees went on strike?

 

 

[xtreeq]

Good questions.

 

About TEVA leaving Israel - I doubt it. The majority of the BOD is still Israeli and the heart of its global operations are here - moving HQ abroad would not only be seen as a betrayal, but I doubt most people would agree to move. However, it is not impossible as Teva has said that if it loses its preferred tax treatment it my move, though it was vague on what exactly this meant.

 

Fat in Teva - exists in spades; employees here have grown lazy and we have a very powerful national union to protect their interests. A few days ago the people at TAPI who produce the Copaxone refused a 31.5% pay raise (!) and they have been on strike for nearly 3 weeks and there is no end in sight - translate this article:

 

http://www.themarker.com/career/1.2155216

 

Finally, with API, like any chemical process, if it is not done in an exact time and manner, it is unusable for drugs (and likely has little to no salvage value thogh I am not an expert on this). I heard from one of the engineers working on the Copaxone production line (it is a small part of a large plant with 2,000 employees who are still on strike) that the loss in API because of the strike is in the tens of millions, and I have no reason to distrust him when you understand that 1 gram of Copaxone costs nearly USD 8,000 - see the math here

 

http://www.peoplespharmacy.com/2013/09/30/per-gallon-cost-of-pricey-prescription-for-ms-adds-up-to-many-millions/

 

Teva sells 4 bn USD of the drug per year, and API is a long process taking several weeks at least. Assuming that only 2 weeks' worth were destroyed, we are talking about lost sales of 153 m and actual cash losses of tens of millions.

 

Hope this helps!

[krazeenyc]

Good questions.

 

About TEVA leaving Israel - I doubt it. The majority of the BOD is still Israeli and the heart of its global operations are here - moving HQ abroad would not only be seen as a betrayal, but I doubt most people would agree to move. However, it is not impossible as Teva has said that if it loses its preferred tax treatment it my move, though it was vague on what exactly this meant.

 

Fat in Teva - exists in spades; employees here have grown lazy and we have a very powerful national union to protect their interests. A few days ago the people at TAPI who produce the Copaxone refused a 31.5% pay raise (!) and they have been on strike for nearly 3 weeks and there is no end in sight - translate this article:

 

http://www.themarker.com/career/1.2155216

 

Finally, with API, like any chemical process, if it is not done in an exact time and manner, it is unusable for drugs (and likely has little to no salvage value thogh I am not an expert on this). I heard from one of the engineers working on the Copaxone production line (it is a small part of a large plant with 2,000 employees who are still on strike) that the loss in API because of the strike is in the tens of millions, and I have no reason to distrust him when you understand that 1 gram of Copaxone costs nearly USD 8,000 - see the math here

 

http://www.peoplespharmacy.com/2013/09/30/per-gallon-cost-of-pricey-prescription-for-ms-adds-up-to-many-millions/

 

Teva sells 4 bn USD of the drug per year, and API is a long process taking several weeks at least. Assuming that only 2 weeks' worth were destroyed, we are talking about lost sales of 153 m and actual cash losses of tens of millions.

 

Hope this helps!

That's not their cost of Copaxone but what they sell it for. Unless there is some kind of shortage or inability to produce it -- it's the cost of the itmes lost that is important.

[xtreeq]

krazee - I understood the person I spoke to as referencing the lost sales in his tens of millions figure. While in theory the API isn't expensive, it isn't something just lying around - it is difficult to source and handle and and remember that any supply buffers are inherently local - i.e. you cannot usually take a 20 mg dose labeled for South Korea and send it to Japan ... - so, you can have actual lost sales once the buffers run out, which may lead various partners to switch to drugs like tecfidera ....

[Palantir]

That was certainly a very definitive post. Good work!

[worldaccordingtoGARP]

Hi xtreeq, thanks for the thoughtful history and analysis of where things stand in Israel today. I do get this sense as well. I have spoken to many Israelis about perception of TEVA (my mother and dad's wife are both Israelis and shared their networks of Israelis in the business community for me to talk to).  There is a cynicism around Teva, no doubt, but I get the sense that a lot of that is due to the stock's performance. A lot of Israelis got very wealthy in Teva, only to see the stock stagnate, disappoint, and create some losers in recent years. In many respects, I see this more as the classic case of a stock price's performance changing perception more so than any fundamental change.

 

You are absolutely correct that the company horribly managed its cash cow in Copaxone with several mistaken acquisitions, but I don't think all is for naught. The company does need to streamline its operations, and while this has caused some collateral damage in domestic public opinion in Israel, it's a necessary step to improving the company's future.

 

As I said before, I really did like Levin and am a bit miffed by his dismissal even still. I'm not sure what happens next in terms of leadership, but there are several possible paths to improve the company's financial performance and value proposition to shareholders, and in the meantime, sentiment towards the pharma industry continues to improve for the first time in a decade. IMO this is a situation that calls for patience and a longer-term perspective.

[worldaccordingtoGARP]

Bloomberg had an article today about the possible paths for TEVA from here. It's mostly speculation, but some worthwhile points:

 

http://www.businessweek.com/news/2013-11-19/leaderless-teva-seen-beckoning-mylan-merger-real-m-and-a