Israeli pharmaceuticals maker Teva Pharmaceutical (NYSE:TEVA) has rallied in significant fashion over the past several months, jumping more than 70% off the 52-week low it notched in August. Undoubtedly, that’s an impressive move, but the stock’s near-term gains could be limited.
The shares are down more than 47% over the past year, while the S&P Pharmaceuticals Select Industry Index has risen by nearly 18% over the same period. Indicating that TEVA stock may now be overbought, it struggled most of last week, even though the FDA decided on Jan. 28 to allow the company’s migraine prevention drug, Ajovy, to be delivered with an autoinjector.
“The approval of the AJOVY autoinjector is another important step forward for Teva and the migraine community,” said Brendan O’Grady, executive Vice President, North America Commercial, Teva, in a statement. “AJOVY is the only FDA-approved anti-CGRP that offers the flexibility of quarterly (675 mg) or monthly (225 mg) dosing options,” O’Grady noted.
Ajovy is a migraine prevention drug that competes with products from Teva’s rivals Amgen (NASDAQ:AMGN) and Eli Lilly (NYSE:LLY). The autoinjector approval is potentially significant for the Israeli company because previously Ajovy was injected with a syringe, while the competing products were delivered with autoinjectors.
Patients’ preference for the autoinjector is shown by Ajovy’s 13.4% market share compared to 49.3% and 37.3%, respectively, for the competing Amgen and Eli Lilly treatments.
Good News/Bad News
While the Ajovy autoinjector news could lift TEVA stock down the road, the company’s near-term outlook is muddied by a new legal issue. Specifically, Teva’s effort to market a generic anti-rosacea cream was stifled earlier this week by a court.
“An appeals court on Wednesday handed a victory to Nestle SE’s Galderma unit in its bid to block a generic version of its Soolantra anti-rosacea cream marketed by Teva Pharmaceutical Industries Ltd.,” reports Reuters. “The U.S. Court of Appeals for the Federal Circuit said a lower court judge erred in ruling that three Galderma patents on Soolantra were invalid as anticipated by an earlier patent.”
Rosacea isn’t the sexiest illness, but generic drugs collectively have the lion’s share of the rosacea treatment market, indicating that the aforementioned appeals court ruling is a blow for Teva. Additionally, the rosacea treatment market is growing steadily, something that Teva could miss out on if it cannot get the unfavorable ruling reversed on appeal.
“The global rosacea treatment market size is expected to reach USD 2.6 billion by 2025,” according to Grandview Research. “It is anticipated to register a compound annual growth rate (CAGR) of 6.8% over the forecast period.”
Granted, the market is not growing as rapidly as genomics or immunotherapy, but rosacea could be a decent revenue generator for Teva.
The Bottom Line on TEVA Stock
Teva is still digesting its 2016 purchase of Actavis Generics from Allergan (NYSE:AGN). The mammoth $40 billion deal has saddled the Israeli company with significant debt. The company has $25 billion in liabilities and while that’s down from the $34 billion of debt it had two years ago, more cost-cutting, something Teva has already engaged in, could be needed.
For investors who missed the aforementioned rally of TEVA stock, there’s no need to be a hero at this point by buying Teva. Yes, traditional metrics confirm that Teva’s valuation is inexpensive, but that doesn’t mean it’s worth buying.
In the interest of prudence, investors ought to wait for Teva to show that it can continue reducing its debt and boosting its revenue before jumping into the stock.
As of this writing, Todd Shriber did not own any of the aforementioned securities.