Analysts at UBS have upgraded their rating on Teva Pharmaceuticals, a manufacturer of generic pharmaceuticals, to ‘Neutral’ from ‘Sell’ citing a now balanced risk/reward profile.
They also raised their price target from US$7 to US$8. Teva shares traded at US$7.53 on Thursday afternoon.
The analysts said their prior ‘Sell’ thesis, based on disappointment around Teva’s attempts to launch in the Humira biosimilar (b-humira) market and management transition, had played out.
“From here, we expect Teva’s gross margins to recover in the near term, some of which is priced in already after stock’s apparent bottoming out earlier in June,” they wrote in a note to clients.
“Following 1Q gross margin setback caused by unfavorable portfolio mix and inflationary pressure, we believe recovery can be fast due to improving product mix and tapering inflation. We believe product mix shift towards more of a contribution from branded revenue can boost gross margins for FY23.”
The analysts added: “We see a period of balanced risk/reward for the stock with limited topline growth: our/consensus three-year revenue compound annual growth rate of 0.6%/1.2% [respectively].”
They also highlighted that Teva’s TL1a, a therapeutic target for the treatment of mucosal inflammation associated with inflammatory bowel disease and asthma, is “a diamond in the rough.”
“Teva’s TL1a can be a valuable pipeline asset for the company, despite being about two years behind in the race versus competitors,” they wrote.
They added that a potential partnership/sale by TL1a by Teva could be a “value-realizing event” for the stock.
“Although it may be difficult to predict that such a development could occur before or after the 2H24 Phase 2 read-out, we note that Prometheus had extended partnership discussions with 17 biopharmas pre-Phase 2, but the acquisition by Merck in April 2023 was realized only after the Phase 2 results in December 2022,” they wrote.
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