CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION ™ Client-Driven Solutions, Insights and Access May 4, 2016 Teva Pharmaceuticals Industries Ltd. (TEVA, Neutral, $60TP) Long-Term Opportunities, But Near-Term Questions RESEARCH ANALYSTS Vamil Divan, MD (212) 538-5394 [email protected]Anamaria Sudarov, PhD (212)-325-1287 [email protected]Muriel Chen (212) 538-6395 [email protected]Initiating Coverage with a Neutral Rating and $60 Target Price: We see opportunities for TEVA as a longer-term story but also see a number of questions and uncertainties in the near-term, leading us to initiate on the stock with a Neutral rating. We do expect the AGN Generics deal to close in June but we worry if TEVA will generate value from the deal given the price it paid, and wonder how recent negative trends in generic drug pricing may impact that side of TEVA’s business. On the specialty pharma business questions remain around the longevity of Copaxone, with numerous legal decisions in the next 12-18 months determining the franchise’s outlook. The Street does now seem to be factoring in a near-worst case scenario for Copaxone, but we also look for more evidence on TEVA’s ability to successfully expand beyond Copaxone and become a more diversified specialty pharma company, with our greatest excitement centered around TEV-48125 (anti-CGRP for migraines). Investment Positives Include: (1) Promising specialty pharma pipeline with several assets holding blockbuster potential, helping to drive top-line growth and lessen TEVA’s reliance on Copaxone; (2) Continued generics leadership to be further boosted by acquisition of AGN’s generics business; and (3) Underappreciated margin expansion opportunity driven by integration of AGN’s generics business and emergence of broader spec pharma business. Investment Risks Include: (1) AGN generics deal fails to close or results in lower synergies or accretion than expected; (2) Earlier-than-expected loss of patent protection for lead product Copaxone (we assume generic entry in 2018); and (3) Setbacks in the development of specialty pharma pipeline assets, most notably TEV-48125 and SD-809. Catalysts: (1) 1Q 2016 Earnings May 9; (2) Copaxone IPR Hearing May 12; (3) SD-809 Huntington’s disease PDUFA late May; and (4) Close of AGN Generics acquisition in June. Valuation: Our $60 target price is based on 75% relative valuation/25% DCF. Our relative valuation ($60) is based on a 11.0x to our 2017 EPS estimate of $5.97 discounted back to 2016, making it $5.48. Our DCF ($60) is based on cash flows modeled through 2025, a 9% WACC and 1% terminal growth. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Transcript
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION™
Client-Driven Solutions, Insights and Access
May 4, 2016
Teva Pharmaceuticals Industries Ltd.
(TEVA, Neutral, $60TP) Long-Term Opportunities, But Near-Term Questions
Initiating Coverage with a Neutral Rating and $60 Target Price: We see opportunities
for TEVA as a longer-term story but also see a number of questions and uncertainties in the
near-term, leading us to initiate on the stock with a Neutral rating. We do expect the AGN Generics deal to close in June but we worry if TEVA will generate value from the deal given
the price it paid, and wonder how recent negative trends in generic drug pricing may impact
that side of TEVA’s business. On the specialty pharma business questions remain around the
longevity of Copaxone, with numerous legal decisions in the next 12-18 months determining
the franchise’s outlook. The Street does now seem to be factoring in a near-worst case
scenario for Copaxone, but we also look for more evidence on TEVA’s ability to successfully
expand beyond Copaxone and become a more diversified specialty pharma company, with
our greatest excitement centered around TEV-48125 (anti-CGRP for migraines).
Investment Positives Include: (1) Promising specialty pharma pipeline with several assets
holding blockbuster potential, helping to drive top-line growth and lessen TEVA’s reliance on
Copaxone; (2) Continued generics leadership to be further boosted by acquisition of AGN’s
generics business; and (3) Underappreciated margin expansion opportunity driven by
integration of AGN’s generics business and emergence of broader spec pharma business.
Investment Risks Include: (1) AGN generics deal fails to close or results in lower synergies
or accretion than expected; (2) Earlier-than-expected loss of patent protection for lead
product Copaxone (we assume generic entry in 2018); and (3) Setbacks in the development
of specialty pharma pipeline assets, most notably TEV-48125 and SD-809.
Catalysts: (1) 1Q 2016 Earnings May 9; (2) Copaxone IPR Hearing May 12; (3) SD-809
Huntington’s disease PDUFA late May; and (4) Close of AGN Generics acquisition in June.
Valuation: Our $60 target price is based on 75% relative valuation/25% DCF. Our relative
valuation ($60) is based on a 11.0x to our 2017 EPS estimate of $5.97 discounted back to
2016, making it $5.48. Our DCF ($60) is based on cash flows modeled through 2025, a
9% WACC and 1% terminal growth.
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Table of Contents (Click on Titles to Navigate Through Note)
Catalysts Valuation
Product
Story
Company
Background
Financial
Statements
Investment Risks
Portfolio Manager’s
Summary
Table of Contents (Click on Titles to Navigate Through Note)
Catalysts Valuation
Product
Story
Company
Background
Financial
Statements
Investment Risks
Portfolio Manager’s
Summary
Portfolio Manager’s Summary
Long-Term Opportunities, But Near-Term Questions
5
$30
$40
$50
$60
$70
$80
Core
Franchise Innovation
Earnings
Growth
Capital
Allocation
Catalysts
Newsflow
Teva Pharmaceuticals (TEVA, Neutral, $60 TP)
Long Term Opportunities, But Near-Term Questions
Credit Suisse PharmaFilter
Excellent Average Poor
Source: Company data, Thomson One, Credit Suisse estimates and analysis
Current Price $54.20 Enterprise Value ($ mm) $61,598
% of 52-Week High 75% 2016 P/E 9.1x
Target Price $60 Dividend Yield 2.5%
Upside / Downside (%) 11% Short Interest (Days) 4.4
Market Cap ($ mm) $55,138
Credit Suisse Estimates vs. Consensus Fiscal Year Ending December 31 ($ in millions, except per share data)
Valuation
Industry Ratings
Analysts Buys Holds Sells Total
No. of Recommendations 20 4 0 24
% 83% 17% 0%
Investment Thesis (1) AGN Generics deal likely to close but we wonder if deal will be able to
generate value given the price paid and the impact of recent negative trends
in generic drug pricing; (2) On the spec pharma side, questions around
Copaxone’s longevity remain with numerous legal decisions upcoming,
although the Street does seem to factoring in a near-worst case scenario;
(3) Look for more evidence on TEVA’s ability to expand beyond Copaxone in
spec pharma, driven by TEV-48125, SD-809 and reslizumab, and (4)
Underappreciated margin expansion potential driven by integration of AGN’s
generics and emergence of more diversified specialty pharma business.
Catalysts (1) 1Q 2016 Earnings May 9; (2) Copaxone IPR Hearing May 12; (3) SD-809
Huntington’s disease PDUFA late May; (4) AGN Generics deal close in June.
Risks (1) AGN generics deal fails to close or results in lower synergies or accretion
than expected; (2) Earlier-than-expected loss of exclusivity for Copaxone (we
assume generic entry in 2018); and (3) Setbacks in the development of
specialty pharma pipeline assets, most notably TEV-48125 and SD-809.
Valuation Our $60 target price is based on a 75% relative valuation and 25% DCF.
Our relative valuation ($60) equates to 11.0x our 2017 EPS estimate of
$5.97 discounted back to 2016 making it $5.48. Our DCF ($60) is based on
cash flows modeled through 2025, a 9% WACC, and 1% terminal growth.
Stock Performance
One Pager
6
Long Term Opportunities, But Near-Term Questions Keep Up Cautious
Leading Generics Provider Now Developing Attractive Portfolio of Specialty Pharmaceuticals
− Already the largest manufacturer of generics in the world, we expect Teva will further strengthen its position following the acquisition of AGN’s generics business (expected in June)
− Significant investment in building a diverse pipeline of specialty pharmaceuticals, with impact to be seen in coming quarters with launch of important products across a range of central nervous system (CNS) and respiratory conditions
− Room for additional business development remains to further boost specialty pharma pipeline
− Underappreciated margin expansion opportunity following the acquisition of the higher-margin AGN generics business as well as the continued evolution and growth of its specialty pharma business
Acquisition of AGN Business to Boost Teva’s Leadership Position in Generics
− We model a 9.7% CAGR on 2016-18 generics revenues
− Global generics business should continue to perform well, supported by strategic acquisition of Rimsa
Generic Competition Beginning to Affect Copaxone, but Importance of Franchise Will Diminish
− Teva has been successful in extending the Copaxone franchise, with ~70% of patients successfully converted to 40mg three times weekly (TIW) dose
− Generic versions of Copaxone 20mg daily (QD) beginning to make an impact, especially in formulary discussions
− IPR challenges and District Court Case for Copaxone 40mg TIW looming, but importance of Copaxone will diminish over time as generics business grows and as specialty pharma pipeline matures
Emerging Pipeline Looking to Build Strong Specialty Business Across Four Major Disease Groups
− (1) migraine and headache; (2) MS, movement disorders and neurodegeneration; (3) pain; and (4) respiratory
Multiple Near-Term Catalysts Will Help Determine Longer-Term Outlook
− Commercial Launches: (1) Vantrela ER; (2) Bendeka; (3) Reslizumab; (4) SD-809; (5) Over 1,000 US and global generics
− Regulatory Submissions: RespiClick franchise; QVAR; SD-809 for tardive dyskinesia; TV-46763 for pain
− Other: 1Q 2016 Earnings on May 9; Close of AGN Generics acquisition in June
Source: Company data, Credit Suisse estimates
Portfolio Manager’s Summary
7
Sales Growth from Spec Pharma Pipeline Drives EPS
Growth (EPS Growth Breakdown)
6.7%
(1.7%)
12.1%
4.7%5.8% 6.6%
(25%)
(20%)
(15%)
(10%)
(5%)
0%
5%
10%
15%
20%
25%
2015A 2016E 2017E 2018E 2019E 2020E
Sales Growth Change in Operating Margin Change in Others Change in Share Count EPS Growth
Key Charts for TEVA
Specialty Pipeline to Drive Top-Line Growth
(Sales Estimates in $ Billion)
Copaxone Remains the Leader in the MS Market
(TRx Market Share in %) Copaxone’s Impact Declining over the Coming Decade
(% Contribution to EPS of Copaxone 2015-2025)
Key Charts
Source: Company data, IMS Health, Credit Suisse estimates
Copaxone Contribution to TEVA EPS Copaxone as % of Total TEVA Revenues
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Copaxone OD Copaxone 3TW Glatopa Tecfidera Avonex Gilenya All Other MS Drugs
8
Controversy Bull Case Bear Case Credit Suisse View
What will be
the impact
of the AGN
acquisition?
AGN generics transaction closing with minimal divestitures required, resulting in optimal synergies starting in 3Q 2016.
Deal close still not certain and benefits from deal may be less than expected, especially when one looks past the 2017-18 timeframe.
We expect the AGN deal to close in June 2016 and synergies to be achieved as guided by Teva’s management, given how well the team has run the generics business since the change in management. However, we wonder if TEVA will be able to generate value from the deal given the price paid and how generic drug pricing trends have evolved since the deal was announced.
What is the
durability of
the
Copaxone
franchise?
Copaxone franchise will remain strong following successful and robust switch to 40 mg three times weekly (TIW) dose. According to current IMS trends, generic Glatopa 20mg daily has only been able to obtain only 5% of market share.
Impact of generic Glatopa 20mg will continue to grow as payers exclude new patients from starting branded Copaxone 20mg daily. Switch to 40mg TIW helps, but adverse court rulings could lead to generic versions of 40mg TIW entering the market in near future.
While Glatopa will continue to peel away new patients, the majority of Copaxone patients are on 40mg TIW now and we do not expect generic entry for that formulation until 2019, after which we expect a steady decline for the franchise. That said, a variety of legal actions and headlines over the next 12-18 months will likely keep this as an overhang for the near future.
What is the
potential for
the rest of
TEVA’s
specialty
pharma
pipeline?
Several interesting assets in Teva’s pipeline, most notably its anti-CGRP TEV-48125, which could be best in class. Other CNS and respiratory pipeline assets also generally underappreciated by investors, with multiple catalysts coming up.
Anti-CGRP is in a very crowded and competitive space, where price competition will be fierce, and it is too early to determine which product will be the winner. Other pipeline assets too early or holding too little potential to be overly excited at this point.
We feel that TEVA’s specialty pharma pipeline could be the key driver of upside in the coming years, especially its anti-CGRP TEV-48125, which has a very attractive profile to date. Beyond migraine, we see potential in assets such as SD-809, reslizumab, laquinimod, and respiratory pipeline and think as data are released, investors will start assigning more value to these opportunities. Importantly, we expect TEVA to continue to boost its pipeline through business development efforts.
2016-2020
Sales CAGR
6.8% 4.5% 5.2%
2016-2020
EPS CAGR
10.2% 4.8% 6.4%
Valuation $68 $48 $60
Credit Suisse View on Main Controversies Surrounding TEVA Shares
Bull, Bear and CS Scenarios
Source: Company data, Credit Suisse estimates and analysis
9
Sales Mix Shows Emphasis on Specialty Pharma Pipeline Driving
TEVA’s Sales Growth, With More Diversity Expected Going Forward
Source: Company data, Bloomberg, Credit Suisse estimates and analysis
Key Specialty Products CS Est Consensus Difference
Copaxone $1,301 $2,086 ($786)
TEV-48125 $1,428 $368 $1,061
SD-809 $586 $922 ($336)
Reslizumab $423 $320 $103
10
6.7%
(1.7%)
12.1%
4.7%5.8% 6.6%
(25%)
(20%)
(15%)
(10%)
(5%)
0%
5%
10%
15%
20%
25%
2015A 2016E 2017E 2018E 2019E 2020E
Sales Growth Change in Operating Margin Change in Others Change in Share Count EPS Growth
We See Sales Growth as Well as Margin Expansion Being Key Drivers of
TEVA’s EPS Growth
EPS Growth Breakdown
Impact of AGN generics acquisition
Impact of AGN generics acquisition
Impact of AGN generics acquisition
Launch of anti-CGRP migraine drug (IP located
in low tax jurisdiction) lowers the overall tax rate
EPS Growth
Source: Company data, Credit Suisse estimates
11
1Q ‘16 Earnings on May 9th
Allergan Generics deal closing and start of integration in June
May 5th district court decision for generic entry for Treanda
May 12th oral hearing on Copaxone 40mg/ml IPR
June 8th Vantrela ER FDA Advisory Committee Meeting
PDUFA for SD-809 in Huntington’s Disease late May 2016
Launch of Reslizumab
Updates on recruitment/ enrollment of TEV-48125 Phase III trial
IPR decision on first 3 patents re Copaxone 40mg/ml formulation and update on district Court case re Copaxone 40mg/ml
SD-809 read out of Phase III in tardive dyskinesia
QVAR BAI Phase III read out in asthma, followed by FDA submission
Pridopidine read out of Phase II efficacy and safety data in Q3’16
TV-45070 for post-herpetic neuralgia
US and Global launches of over 500 products
Vantrela ER abuse deterrent hydrocodone approval
Topline Phase III data for TEV-48125 in chronic and episodic migraine 2H 2017
Laquinimod read out in phase 3 of RRMS
Additional 20mg Copaxone generics are approved and launched
Laquinimod Phase II read out in Huntington’s disease
Catalysts
1H 2016 2H 2016 2017
Low
Price Sensitivity
High
Source: Company data, Credit Suisse estimates
Close of AGN Deal and Updates on Copaxone, Pipeline Key
Near-Term Catalysts
12 Source: Company data, Credit Suisse estimates and analysis
Investment Risks
Multiple Risks to Our $60 Target Price
Failure to close or lower-than-expected synergies and accretion from the acquisition of AGN’s
generics business
− TEVA management has guided to $1.4Bn in synergies from the deal over the course of three years
− Close of deal has already been pushed out from 1Q 2016 until June 2016, highlighting complexity of the transaction and negatively impacting synergies to be obtained in FY 2016
− Regulatory authorities in the EU have approved the deal but also requested a somewhat greater level of divestitures to allow
for completion. Greater levels of divestitures in the US could negatively affect the value of the deal to TEVA
Greater-than-expected erosion of Copaxone franchise
− We expect Copaxone 20mg once daily (QD) to lose new patient share to generic versions of the drug
− However, we do not expect generic versions of Copaxone 40mg three times weekly (TIW) to enter the market until 2019
− Should generic manufacturers win their arguments in court and/or launch generics versions of Copaxone 40mg TIW at risk, this would likely lead to downside to current estimates and also negatively impact investor sentiment on the stock
Clinical risk in the pipeline and failure to complete achieve successful phase III registrational
studies
− Specifically, delays or setbacks in the development of key pipeline products TEV-48125 (anti-CGRP antibody for both episodic
and chronic migraines) and SD-809 (for Huntington’s disease) would be disappointing and present downside risk to our estimates
Commercial risk if new product launches are not able to gain expected market share
− This includes the launch of 1,000-1,500 generic products following the AGN Generics acquisition as well as important
branded products in the specialty pharma pipeline
13
Blended Target Price Suggests TEVA Is Worth $60/Share
Valuation: $60/Share
Key Assumptions Driving Our Valuation
− We believe a 75%/25% blend of relative/DCF valuation best captures both TEVA’s short-term
and long-term outlook, as well as it evolving business model
− On a relative basis, we apply a 11.0x to our 2017 EPS estimate of $5.97 discounted back to 2016, keeping TEVA at a modest discount to comparable companies (JAZZ, PRGO, MYL)
− On a DCF basis, we project cash flows through
2025 and then 1% terminal growth after that, along with a 9% WACC (higher than U.S. major
pharma companies in our coverage)
Valuation Snapshot
Target Price
DCF Valuation Snapshot
0.0% 1.0% 2.0%
7.0% $82 $94 $111
8.0% $66 $75 $86
9.0% $54 $60 $68
10.0% $44 $49 $54
11.0% $36 $40 $44
* Terminal Value is 53% of EV
Perpetuity Growth
W
A
C
C
Relative Valuation
2017 EPS $5.97
WACC 9%
2017 EPS discounted to 2016 $5.48
Applied PE multiple 11.0x
Peer average multiple 10.4x
Relative PE Valuation $60
DCF Relative Valuation
Valuation $60 $60
Weight 25% 75%
Blended TP
Current Price
% Upside
$60
$54.20
11%
Source: Company data, Credit Suisse estimates
Product Story
Shift from Generics/Copaxone to Broader Specialty Pharma Opportunity
Table of Contents (Click on Titles to Navigate Through Note)
Catalysts Valuation
Company
Background
Financial
Statements
Investment Risks
Portfolio Manager’s
Summary
Product
Story
16
Products
Sales from New Product Launches Begin to Make an Impact in 2019,
and We See Them Reaching $6.1Bn (Probability-Adjusted) by 2025
$7.8$7.1
$6.4$5.6
$5.1 $4.7 $4.5 $4.3 $4.2 $4.1
$0.2$0.6
$1.4 $2.3$3.4 $4.1 $4.8 $5.4
$6.1
$0
$2
$4
$6
$8
$10
$12
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Marketed Products New Launches
Source: Company data, Credit Suisse estimates and analysis
TEVA Sales Estimates
(Sales in $ Billion)
Specialty Pharma
Copaxone Anchors TEVA’s Specialty Pharma Business, but Importance Declining
18
Copaxone
Copaxone Remains the Key Contributor to TEVA’s EPS, but Impact
Copaxone Contribution to TEVA EPS Copaxone as % of Total TEVA Revenues
Source: Company data, Credit Suisse estimates and analysis
19
Source: Company data, Credit Suisse estimates and analysis
Copaxone Franchise Has Been Protected on Multiple Fronts, but
Impact of Generics Looming in Late 2018
In 2014, FDA approved a new dosage for Copaxone, a 40mg/ml formulation
− New formulation is administered three times a week (in comparison with once daily 20mg/ml dosage) and priced at ~$65K as
compared with previous 20mg/ml once daily dose at ~$74K
− TEVA successfully converted ~70% of US Copaxone patients to the new formulation prior to the entry of generic versions
− Copaxone 40mg/ml has also been quite favorably received in the EU owing to its lower price (~17% less mg per year are administered using new formulation), with transition to 40 mg/ml formulation going well (~60% conversion in 16 EU markets)
Copaxone business durability might experience more bumps starting in 2018
− Generic version of 20mg/ml formulation (called Glatopa) launched by Novartis in 2015 at a price of ~$63K
− On April 12, 2016, Synthon obtained approval for glatiramer acetate 20mg/mL in Europe
− At the moment, management believes and IMS scripts show that ~95% of patients remain on Copaxone and that Glatopa was able to secure ~5% of the market share
− Important to note that there is a data restriction on Glatopa scripts in IMS; likely 25-35% of Glatopa sales are not being
captured by IMS
− Copaxone 40mg/ml still maintains strong payer coverage (management guides to ~98% coverage), but our conversations with
physicians and payer consultants suggest certain formularies are now excluding Copaxone 40mg/ml and offering only Glatopa
for new patients
Copaxone
We currently assume TEVA will be successful in protecting Copaxone franchise until late 2018 via
different appeal processes but we model competition to 40mg starting in late 2018/early 2019
20
Source: Company data, Credit Suisse estimates and analysis
Switch to 40mg/ml Dose Has Helped to Extend Copaxone’s Lifecycle
At risk generic launch of 40mg/ml dose remains a possibility for January 2017 when TEVA’s market
exclusivity expires, but multiple litigations most likely prevent generic entry until at least early 2018
There are four “method of use” patents listed for Copaxone 40mg/ml in the FDA Orange Book
TEVA is currently involved in a District Court case for which it has filed patent infringement lawsuits
against Mylan/Natco Pharma, Synthon, Dr. Reddy’s, and Sandoz/Momenta
− District Court case hearing is from September 26-October 4
Mylan has filed three Inter Partes Review (IPR) petitions on Teva’s 40mg/ml formulation and
recently a Post Grant Review (PGR) on the fourth patent
− Hoping to invalidate the patent estate saying three times a week is unpatentable, as it is obvious based on preexisting work
− Teva is arguing there was no prior art in three times a week dosing
− Previous studies suggested that every other day dosing increases relapses
− Hearing on the first three patents is scheduled for May 12, 2016, with PTAB decision on IPR expected in August 2016
− For the PGR case, we are expecting TEVA to submit their response by May 24, 2016, with a decision expected on instituting
the PGR by August 24, 2016
− In both scenarios, appeals processes could extend out potential cases for an additional year
Copaxone
Teva management believes the worst-case scenario for them to be a loss of $1.2Bn in revenue and
$0.65 in EPS in 2017 in the event generic versions of Copaxone 40mg/ml enter the market
21
Various Court Cases in 2016-2017 to Determine Copaxone’s Future
Source: Company data, Credit Suisse estimates and analysis
Copaxone
Aug. 25/
Sep. 2 2015
PTAB instituted all
three IPRs against
three patents
Oct 2015
4th patent issued
Sep 2014
Teva filed patent
infringement
(Copaxone 40mg)
lawsuit in district
court; 30-month
stay period starts
Nov 2015
Teva’s filing
of defense
evidence of IPR
proceedings
Feb 16 2016
PGR petition filed
against 4th patent
March 2016
Markman
hearing decision
May 12 2016
Oral hearing of
all three IPRs
May 24
TEVA’s response
to PGR petition
Aug 24 2016
Deadline for PGR
institution decision
Aug 25 2016
Deadline for final
decision on the
three IPRs
Sep 26 – Oct 4
Trial scheduled
Jan 28 2017
40mg FDA LoE (loss of
three-year exclusivity)
Jan 28 2017
40mg 3 year FDA LoE
Feb 1 2017
30-month Hatch-Waxman stay
ends;
Verdict expected on the litigation
just before the stay period ends
Aug 24
If instituted, deadline for
final decision on the PGR; if
appealed decision by Aug
2018
District Court Case
Possible Future Course of Action:
Affected party can appeal to the federal
circuits court and an outcome will be
available in around one year
PGR IPR
Possible Future Course of
Action:
Teva or Mylan can file request for
rehearing to PTAB; Further appeal
can be made to the federal circuits
court
22 Source: Company data, FDA Orange Book Credit Suisse estimates and analysis
Patent No. Patent Expiration Use Patent
8,232,250 August 19, 2030 Method of treating MS by administering Copaxone Method: Low-frequency glatiramer acetate therapy
8,399,413 August 19, 2030 Method of treating MS by administering Copaxone Method: Low-frequency glatiramer acetate therapy
8,969,302 August 19, 2030 Method of treating MS by administering Copaxone Method: Low-frequency glatiramer acetate therapy
9,157,776 August 19, 2030 Method of treating MS by administering Copaxone Method: Low-frequency glatiramer acetate therapy
Four Orange Book Listed Patents Support 40mg/ml Copaxone Dose
TEVA’s fourth patent includes clinical data from the GALA study of the 40mg/ml formulation that
showed a reduction in the severity of side effects
− Teva expected a reduction in the number of side effects, as these are associated with number of injections, but not a reduction in severity of side effects
− This patent is being debated through the PGR process
− TEVA’s response to the petition is expected on May 24, and it is expected to ask for the dismissal of the case, arguing that PGR is not the right avenue for this challenge
− The decision on PGR being instituted is expected in August 2016
− Final decision (if the PGR is instituted) is expected in August 2017 and that is also appealable, which would push out the timeline for a final decision until around August 2018
Copaxone
23 Source: IMS Health, Credit Suisse estimates and analysis
Copaxone 40mg Three Times a Week Continues to Demonstrate Strong
Uptake Since Launch
Weekly TRx Ramp Since Respective Drug Launches for Various Multiple Sclerosis Therapies
Note: IMS noted a reporting restriction owing to a confidential supplier agreement soon after Glatopa launch. IMS have not estimated missing scripts, and we do not know to what extent Glatopa scripts in this figure understate utilization.
Copaxone
Weekly TRx Ramp for MS Drugs Since Their Respective Launches
Source: Company data, Credit Suisse estimates and analysis
Copaxone
Our Bear Case assumes entry of generic versions of Copaxone 40mg TIW in early 2017 due to loss of either IPR or the District Court case, and then an at-risk launch by generic competitors
Pipeline
Multiple Assets Targeting Various High-Revenue-Potential Therapeutic Areas
29
Pipeline
Source: Company data, Credit Suisse estimates and analysis
Emerging Specialty Pharma Pipeline Crucial to TEVA’s Future Growth
Series of acquisitions such as Cephalon and Auspex has helped TEVA expand its pipeline and build a
robust portfolio of assets, but momentum must be continued with successful development and
commercialization of these assets, and likely future acquisitions to bring added diversification
We are most excited about the potential of TEV-48125 and SD-809, and see both as possible
blockbusters
Drug Indication Phase Catalyst Expected LaunchCS 2020 Adjusted
Sales Estimate
CS Peak
Unadjusted Sales
Chronic heart failure III
Acute myocardial infraction II
TEV-48125 Chronic and episodic migraine II start Phase III trial in 1H 2016 2019 $1.4Bn $5.9Bn
Huntington's III
Tardive Dyskinesia II
Tourette's I
TV-46763 Abuse-deterrent pain IIIexpected to be filed in 2016 wit potential approval
in 20172017 $88mm $766mm
Reslizumab Severe eosionophilic asthma III regulatory action expected in March 2016 2016 $423mm $665mm
RRMS III
PPMS II
Huntington's II
Vantrela ER Abuse-deterrent pain III PDUFA date in 1Q 2016 4Q 2016 $108mm $253mm
Fluticasone Salmeterol Asthma III plans to file NDA in 1Q 2016 2017 $34mm $119mm
Fluticasone Propionate Asthma III plans to file NDA in 1Q 2016 2017 $47mm $78mm
Pridopidine Huntington's II results from Phase II in 2Q 2016
TV-45070 Osteoarthritis and Neuropathic pain IIPhase IIb clinical trial expected to be completed
mid 2016
* - CEP-41750 is via partnership with Mesoblast, which is covered by CS Biotech Analyst, Alethia Young
2020 $102mm $365mm
2019 $30mm $4.1Bn*
4Q 2016 $586mm $2.7BnSD-809
Laquinimod
CEP-41750 (MC)
PDUFA in Huntington's Disease May 2016; read
out of Phase III in tardive dyskinesia in 2H 2016
Phase III underway and second phase III
confirmatory trial to start in 1H 2016
data for RRMS and PPMS expected in 2017 with
plans to file NDA in 2018 for RRMS
30
Migraine and Headache—TEV-48125
Movement Disorders and Neurodegeneration—SD-809, Laquinimod
Respiratory—Reslizumab, Fluticasone Salmeterol, and Fluticasone
Propionate
We See Potential Upside in Three Specific Areas of TEVA’s Pipeline
31
Migraine and Headache—TEV-48125
Movement Disorders and Neurodegeneration—SD-809, Laquinimod
Respiratory—Reslizumab, Fluticasone Salmeterol, and Fluticasone
Propionate
We See Potential Upside in Three Specific Areas of TEVA’s Pipeline
32
Triptans
TEV-48125
Source: Company data, Credit Suisse estimates and analysis
Unmet Need in Migraine Prevention Presents a Large Commercial
Opportunity for Developers of Anti-CGRP Antibodies
Migraines are the most common neurological condition in the developed world
− Neurovascular disorder associated with dysfunction of the cerebral nerves and blood vessels
Eighth most disabling illness in the world
− 38MM patients in the US and 33MM patients in the EU
− 14MM patients suffer from chronic migraines (15 or more attacks per month)
− It affects around 8% of men and 18% of women
− Most often affects people between the ages of 25 to 55
− 70% of migraine patients have strong genetic component
− 50-60% of all migraine patients suffer from episodic migraine (EM) or chronic migraine (CM)
Attacks typically last 4-72 hours
− Associated with nausea, vomiting, photophobia, phonophobia, functional disability, and visual disturbances
Movement Disorders and Neurodegeneration—SD-809, Laquinimod
Respiratory—Reslizumab, Fluticasone Salmeterol, and Fluticasone
Propionate
We See Potential Upside in Three Specific Areas of TEVA’s Pipeline
46
SD-809
Source: Company data, Credit Suisse estimates and analysis
SD-809 is an oral deuterated tetrabenazine
− Characterized by a longer half-life and improved tolerability profile
− Currently being studied in chorea for Huntington’s disease, Tardive Dyskinesia, and tics in Tourette’s syndrome
− Patent exclusivity until 2031 in the US and 2029 in EU
Tetrabenazine has been characterized by a number of serious safety issues, including depression,
suicidality, restlessness, somnolence, insomnia, anxiety, and the potential drug-drug interactions
− Based on recent clinical data, SD-809 appears to have a reasonable tolerability profile, with 4.4% depression rate in the FIRST-HD study and no difference in suicidal ideation from patients treated with placebo
Auspex Acquisition in March 2015 Added SD-809 into TEVA’s Growing
Specialty Pharma Pipeline
47 Source: Company data, Credit Suisse estimates and analysis
SD-809 Is Being Developed for Multiple Indications: Chorea in
Huntington’s Disease, Tardive Dyskinesia, and Tourette’s Syndrome
Teva has filed an NDA for SD-809 for the treatment of chorea in Huntington’s Disease
− TEVA received Orphan and Breakthrough Therapy Designation, and PDUFA’s date is scheduled in May 2016
− Management has guided that the Huntington’s disease opportunity could be ~$600-700MM
Tardive dyskinesia is second indication for SD-809
− Results from phase 3 trial expected in mid-2016
− FDA granted Breakthrough Therapy Designation to the product in this indication
− Management plans to submit an sNDA in 2H 2016, with potential launch in 2017
− ~500K patients suffer from tardive dyskinesia in the US, suggesting a market opportunity of ~$1.5Bn in this indication
TEVA also obtained data in phase Ib for Tourette’s syndrome, which could represent an additional
$500MM opportunity
We currently estimate a launch in 3Q 2016, with probability-adjusted sales exceeding $1.2Bn in
2023, and peak sales potential of $1.7Bn in 2025
− We currently assign a probability of success of 95% in Huntington’s Disease, 60% in Tardive dyskinesia, and 35% in Tourette’s syndrome
SD-809
48 Source: IMS Health, Credit Suisse estimates and analysis
Tardive Dyskinesia (TD) Is a Large Underserved Market
TD is characterized by oro-buccal-lingual stereotypy
− It can be manifested in the form of akathisia, dystonia, tics, tremor, chorea, or as combination of different types of abnormal movements
− In addition to movement disorders, patients with TD may have a variety of sensory symptoms such as an urge to move, paresthesias, and pain
Pathophysiology remains very poorly understood, and treatments are often challenging
− It has been speculated that it could be result of chronic blockade of dopamine receptors, particularly D2 and possibly D3
TD prevalence is estimated to be 20-50% of all patients treated with neuroleptics, with prevalence
increasing with advanced age
− There are about 17MM patients in the US that are diagnosed with schizophrenia, bipolar disorder, and/or MDD
− 6MM patients are prescribed antipsychotics
− 2MM patients who are on antipsychotics suffer with a movement disorder
Overall, about 500,000 patients suffer from tardive dyskinesia in the US
− 56% of these are diagnosed as moderate to severe patients
SD-809
49 Source: Company data, Credit Suisse estimates and analysis
In the ARM-TD study, SD-809 showed a statistically significant reduction in involuntary movements
as determined by the Abnormal Involuntary Movement Scale (AIMS)
− This was the primary endpoint of the study, and the p value was 0.0188
In addition, all secondary endpoints were also achieved in favor of SD-809
Safety profile suggested favored profile with low rates of neuropsychiatric adverse events
SD-809 in Tardive Dyskinesia Has Potential for $1.5Bn in Peak Sales
SD-809
50 Source: Company data, Credit Suisse estimates and analysis
SD-809 was assessed in Tourette Syndrome (TS) in a phase Ib study
TS is a neuropsychiatric disorder characterized by uncontrollable tics, both verbal and nonverbal
− Onset generally in early childhood (6-7 years)
− Often associated with other neurobehavioral conditions such as ADHD and OCD
There are ~150K patients with TS in the US
− According to a CDC study, 1 out of every 360 children aged 6 through 17 are diagnosed with TS
− 37% are diagnosed with moderate or severe forms of the condition
− Boys are affected 3-5x more than girls
In December 2014, Abilify was approved in the US for TS
− Abilify, however, is associated with a range of adverse events: drowsiness, agitation, weight gain, and sleep disturbances
Physicians may start treatments as monotherapy using clonidine or clonazepan (Klonopin)
− If monotherapy is a failure, physicians often prescribed a combination of haloperidol (Haldol) and fluoxetine (Prozac) or a combination of clonidine (Catapres) and dextroamphetamine (Dexedrine)
SD-809 in Tourette Syndrome Is a Potential $500MM Opportunity
SD-809
51 Source: Company data, Credit Suisse estimates and analysis
TEVA announced promising Phase Ib results for SD-809 in Tourette’s Syndrome in mid-2015
Subjects showed statistically significant results at eight weeks in the three parameters analyzed
− Total tic severity (TTS) score from Yale Global Tic Severity Scale (YGTSS)
− TS—Clinical Global Impression (TS-CGI)
− Patient Global Impression of Change (PGIC)
Early Data Encouraging for SD-809 in Tourette Syndrome
Total Tic
Motor Tic
Vocal Tic
SD-809
52 Source: Company data, Credit Suisse estimates and analysis
Neurocrine is developing NBI-98854 for tardive dyskinesia and Tourette’s syndrome
NBI-98854 is a VMAT2 inhibitor
− Causes reduction of dopamine release at the nerve terminals by selectively inhibiting the pre-synaptic human vesicular monoamine transporter type 2
− Selectivity helps reduce side effects and allows for once-daily dosing that appears to be well tolerated so far
Neurocrine completed KINECT 3 placebo-controlled, double-blind, randomized study in October
2015 in moderate to severe tardive dyskinesia patients
− Primary efficacy endpoint was the change from baseline in the Abnormal Involuntary Movement Scale (AIMS) at week six
− The AIMS ratings at W6 for 80mg was reduced by 3.1 points dose more than placebo arm (p<0.0001)
Currently, KINECT 4, a one-year, open-label safety study, has been initiated to support a 2016 filing
in tardive dyskinesia
NBI-98854 is also in development for the treatment for Tourette Syndrome in T-Forward study, a
Phase II study in adults
− Data readout is expected in H2 2016
− NBI-48854 is also being examined in children and adolescents in a Phase II study with data expected late in 2016
Neurocrine’s NBI-98854 Will Be an Important Competitor to SD-809
SD-809
Our research suggests that, while the doctors feel NBI-98854 has a preferable PK profile to SD-809,
the market appears large enough for both products to be successful
53
Migraine and Headache—TEV-48125
Movement Disorders and Neurodegeneration—SD-809, Laquinimod
Respiratory—Reslizumab, Fluticasone Salmeterol, and Fluticasone
Propionate
We See Potential Upside in Three Specific Areas of TEVA’s Pipeline
54
Respiratory
Source: Company data, Credit Suisse estimates and analysis
Respiratory products already represent a major part of Teva’s business, with annual sales of ~$1Bn
− 400 person salesforce currently promotes ProAir and QVAR
Uncontrolled asthma continues to represent a major unmet need
− 300MM people worldwide suffer from asthma
− Current studies project additional 100MM people suffering by 2025
− ~10% of asthma patients are uncontrolled despite optimized therapy
− 40% of uncontrolled asthma patients have high eosinophil count, caused by the proliferation of pro-inflammatory eosinophils
− Interleukin 5 (IL-5) plays a key role in the production and role of eosinophils
− There are currently no approved treatments directly targeting the cause of exacerbation
Chronic Obstructive Pulmonary Disease (COPD) also a major medical problem
− Progressive lung disease that includes emphysema, chronic bronchitis, refractory (non-reversible) asthma, and some forms of
bronchiecstasis
− Primary characteristic is increasing breathlessness. Other symptoms include frequent coughing (with and without sputum), wheezing, tightness in the chest
− Affects an estimated 65MM individuals globally and 24MM in the US
− ~3MM people die of COPD each year, making it the fifth leading cause of death globally; WHO predicts COPD to be the third leading cause of death by 2030
− Most common causes and risk factors are inhalation of pollutants (cigarettes, pipes, cigars, and second-hand smoke as well as fumes, dust, and chemicals in work environments)
Respiratory Is an Important Area of Focus for TEVA’s Specialty Pharma
Business, with Emphasis in Asthma and COPD
55 Source: Company data, Credit Suisse estimates and analysis
TEVA’s Respiratory Pipeline Is Extensive Across Different Stages of
Development
Phase I
− SD-560 in Idiopathic pulmonary fibrosis
− Fluticasone Salmeterol (MDI) EU in Asthma and COPD
− Fluticasone Salemeterol Spiromax EU in Asthma and COPD
Respiratory
56 Source: Company data, clinicaltrials.gov, Credit Suisse estimates and analysis
Cinqair (reslizumab) approved by FDA on Mar 23 for treatment of severe asthma in patients 18
years of age and older
− Represents a potential $1Bn opportunity
− Intravenous humanized monoclonal antibody to interleukin IL-5 for eosinophilic asthma, administered every four weeks
− Disrupts eosinophil maturation and promotes programmed cell death
− Phase III trials demonstrated not only promising data on controlling asthma but improving overall quality of life
− Two 52-week trials used annual rate of clinical asthma exacerbations as the primary efficacy endpoint but also considered lung function, quality of life, asthma control, and safety
− Patients in the active arm had 50% and 59% reductions in clinical asthma exacerbations
− There were no differences in safety and tolerability between reslizumab and placebo arm
− TEVA looking to launch imminently in the US and by YE 2016 in EU
We currently model a slow ramp with $423mm in 2020 and peak sales potential of $665mm
Major competition comes from GSK’s product Nucala (mepolizumab), an add-on maintenance
treatment of patients with severe asthma and with an eosinophilic phenotype
− Nucala did not demonstrate an improved quality of life, and this could be a differentiating factor for reslizumab
Subcutaneous formulation of reslizumab (110mg every four weeks) in development
− Phase 3 efficacy and safety study of reslizumab in patients with oral corticosteroid dependent asthma and elevated blood eosinophils; completion expected in October 2017 (NCT02501629)
− Phase 3 study in patients with uncontrolled asthma and elevated blood eosinophils; completion expected Dec 2017
Respiratory
Recently Approved Cinqair a Key Product for TEVA Respiratory Business
57
Respiratory
Source: Company data, IMS Health, Credit Suisse estimates and analysis
Competition in Respiratory Business Is Intense
Weekly TRx Market Share for Asthma/COPD Drugs since Breo Launch
Weekly TRx Market Share for Asthma and COPD Drugs since Breo Launch
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Oct
-13
Nov-
13
Dec-
13
Jan-1
4
Mar-
14
Apr-
14
May-
14
Jun-1
4
Jul-14
Aug-1
4
Oct
-14
Nov-
14
Dec-
14
Jan-1
5
Feb-1
5
Mar-
15
May-
15
Jun-1
5
Jul-15
Aug-1
5
Sep-1
5
Oct
-15
Nov-
15
Jan-1
6
Feb-1
6
Mar-
16
Apr-
16
Olodaterol
Tio&Olo
Incruse
Arnuity
Arcapta
Breo
Anoro
Daliresp
Tudorza
Dulera
Symbicort
Spiriva
Advair
21%
24%
34%
6%
7%
4%
48%
26%
18%
58
Respiratory
Source: Company data, Credit Suisse estimates and analysis
− Fluticasone propionate demonstrated in phase III, 12-week global clinical trial, clinically relevant and greater benefit of all doses
(50, 100 and 200 mcg BID nominal delivered doses) vs. placebo
− The majority of adverse events were mild to moderate in severity and comparable to placebo
− We model probability-adjusted revenues of $34MM in 2020
Fluticasone propionate/salmeterol
− An alternative formulation of GSK’s Advair, which loses patent in 2016
− It is a combination of glucocorticoid and long-acting beta agonist (LABA)
− In the double-blind studies, fluticasone propionate/salmeterol MDPI demonstrated clinically relevant and greater benefit at all
doses (50/12.5, 100/12.5, 200/12.5 mcg BID nominal delivered doses) vs. placebo and vs. monotherapy in the improvement of lung function
− We model probability-adjusted revenues of $286MM in 2020
59
Respiratory
Source: Credit Suisse PharmaValues database
PharmaValues Database Shows TEVA Highly Leveraged to
COPD/Asthma Market
60
Respiratory
Percentage of TEVA’s NPV Coming from COPD/Asthma Market
Exceeds All Other Companies in the Space
0 5 10 15 20 25
Teva
GlaxoSmithKline
AstraZeneca
Boehringer Ingelheim
Regeneron
Novartis
Roche
Merck
Sanofi
Astellas Pharma
% of Drug NPV from category
% drug value from mktd drugs
% from pipeline
% uplift from pipeline @ 100% prob
Source: Credit Suisse PharmaValues database
61
Laquinimod
Source: Company data, Credit Suisse estimates and analysis
Modest Laquinimod Sales Could Still Be Meaningful, Enabling TEVA to
Leverage Its Strong Commercial Presence in the MS Market
Laquinimod is a once-daily oral, CNS-active immunomodulator with a novel mechanism of action
Currently being tested in phase II for PPMS and phase III for RRMS
− Two global phase III trials ALLEGRO and BRAVO testing 0.6mg/day dosage
− Third global phase III trial CONCERTO is currently ongoing and evaluating two doses of laquinimod (0.6mg and1.2 mg/day)
RRMS phase III and PPMS phase II data readouts are expected in 2017
Teva is planning on filing an NDA for RRMS in 2018
− We currently model probability-adjusted sales of ~$715MM in 2025
PPMS is a huge unmet need with no approved treatments
− Results from phase II ARPEGGIO study evaluating laquinimod for the treatment of PPMS is expected in 1H 2017
Management guided that laquinimod could potentially be a $2Bn opportunity if laquinimod is
successful in achieving efficacy in hard-to-treat PPMS patient population
We assume a 2019 launch in RRMS but are remaining on sidelines for PPMS indication, as this has
been an extremely hard patient population to treat successfully
− In the following slides, we go into more detail around the science underlying MS and reasons why we remain skeptical on success in PPMS
62
Relapsing Remitting MS Secondary Progressive MS Primary Progressive MS
Major Market Population
(Credit Suisse est) 1,000,000
300k-500k (50% of RRMS within 10yrs)
150k-300k
Onset teenage-30 yrs Later years 40-50 yrs
Gender Bias
(Female:Male) 3:1 3:1 1:1
Lesions
(as Visualized by MRI) Large, primarily in the brain Large, located in brain and spinal cord
Fewer, same in size as RRMS, primarily located in spinal cord
Neuron State Inflamed* Inflamed/Degenerated Degenerated (less inflamed than
RRMS)
Phenotype
Inflammation* Present Present Not existent
Gene Expression
Patterns Same, adaptive immune pathways
Same, including PPMS and RRMS- associated genes
Same, innate immune pathways
Drugs ABCR’s; Aubagio; Tysabri;
Tecfidera; Gilenya; Lemtrada Novantrone; if patient was on RRMS
therapy will likely continue on the same None
* - Note that inflammation is what likely provides neuron healing in RRMS. In PPMS, as there is no or very little inflammation, there is no signal to induce neuronal repair.
Different Forms of MS Have Different Underlying Pathologies and
Different Possible Treatment Options
Source: National MS Society, Credit Suisse research; Ratzer et al., 2013 MS; Cree et al., 2014 Handb Clin Neuro, Credit Suisse analysis
Laquinimod
63
Relapse Remitting MS Is the Most Common Form of MS
85-90% of all MS patients
Patients exhibit the acute and almost eponymous relapse
Clinical features include:
− 25% of cases exhibit optic neuritis (usually unilateral)
− 45% of cases exhibit brainstem events and partial spinal cord syndromes: sensory in nature, involving sphincter and/or sexual dysfunction.
Onset during teenage to 30 years
Strong gender bias, 3:1 in female to male
Hallmark of RRMS is the inflammation, based on an immune-response
− The intense inflammation process is followed by “relapse”
Variety of anti-inflammatory and immune-modulating drugs are beneficial for RRMS
Current approved drugs include: Avonex, Betaseron, Extavia, Copaxone, Rebif, Novantrone,
Tysabri, Gilenya, Aubagio, and Tecfidera
Source: National MS Society, Credit Suisse research
Laquinimod
64
5%10%
50%
Laquinimod
PPMS Accounts for the Least Number of MS Patients, but the Need for
Treatment Is the Greatest
Source: www.msatrium.com, Healthline, Credit Suisse estimates and analysis
Percentage of patients diagnosed with RRMS Percentage of people with RRMS who transition to
SPMS within a decade of initial diagnosis
Percentage of people diagnosed with PPMS at onset Percentage of people with PRMS, the rarest form of MS
85%
65
Primary Progressive MS Is the Most Severe Form of MS and Is
Characterized by Constant Neurodegeneration
About 10% of all MS patients
Patients experience steady neurological decline from the onset of the disease, with the long-term
prognosis generally poor
Clinical features include:
− Neurons and axons continuously degenerate,
− 80-85% cases exhibit spastic paraparesis usually with no clear sensory level,
Patient Population Both genders 28 years and older
PPMS
Primary Endpoint Evaluate the brain atrophy as defined by PBVS from baseline to 48 weeks using MRI analysis, MRI Brain and C-spine every 12 weeks
EDSS, T25FW, 9HPT, SDMT will be evaluated every 12 weeks
Secondary Endpoint Evaluation of confirmed disability progression The number of new T2 lesions Change in the Brief International Cognitive Assessment for Multiple Sclerosis (BICAMS)
Readout Estimated completion date: 2H 2017
CT.gov Identifier NCT01779934
- - -
Primary and Secondary Endpoint
8 9
Laquinimod 1.0 mg/day
N= 500(est)
Placebo
1 2 3 5 6 7 8 9 10 4 45 46 47 48 Weeks
Laquinimod 1.5 mg/day
Laquinimod 0.6 mg/day
ARPEGGIO Proof-of-Concept Phase II MRI Study Will Provide Insight to
Laquinimod’s Potential in PPMS
Source: www.clinicaltrials.gov, BioMed Tracker, Credit Suisse estimates and analysis
Laquinimod
67
Laquinimod
Source: Credit Suisse PharmaValues database
PharmaValues Database Shows TEVA’s Leverage to the MS Market
68
0 20 40 60 80 100
Biogen Idec
Perrigo Company
Teva
Merck KGaA
Mitsubishi Tanabe
Roche
Novartis
Sanofi
Bayer
Celgene
% of Drug NPV from category
% drug value from mktd drugs
% from pipeline
% uplift from pipeline @ 100% prob
Laquinimod
Source: Credit Suisse PharmaValues database
Copaxone Main Driver of TEVA’s NPV from MS Market, with Laquinimod
Offering a Modest Degree of Possible Upside
Generics
AGN Deal Important Near-Term Driver of Growth for TEVA’s Generics Business
70
Generics
Source: Company data, IMS Health, Credit Suisse estimates and analysis
Even Prior to AGN Deal, TEVA’s Generics Business Was World’s Largest
$
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
2011 2012 2013 2014 2015
Teva Mylan Allergan Sandoz Dr Reddy Sun Pharma
Combination of TEVA & AGN is going to further
widen the lead TEVA has over competitors
Generic Products IMS US Sales (Sales in $ Million)
71
Generics
Source: Company data, Credit Suisse estimates and analysis
Generics Business Has Driven Significant Profitability Improvement
Over Past Three Years
Combination of improving product mix, cost reductions, and new product launches have helped drive margin expansion for TEVA’s generic segment over the past three years
Acquisition of AGN Generics business should provide further boost to TEVA’s margins, given higher-margin profile of AGN’s business
TEVA Generic Segment Profit and Margin Expansion in 2013-2015
Profit ($M) and Margin (%) Gross Profit and Profit Margin Evolution
$9,902 $9,814 $9,546
Revenue $M
$1,680
$2,166
$2,682
17% 22%
28%
2013 2014 2015
Profit Margin
41.2%43.3%
47.1%
17.0%22.1%
28.1%
FY 2013 FY 2014 FY 2015
Profit margin Gross profit margin
72
Source: Company data, Credit Suisse estimates and analysis
Closing AGN Generic Deal Is Important to TEVA’s Near-Term Growth
In July 2015, TEVA announced purchase of AGN generics unit in a $40.5 Bn transaction
− Deal paid for with $33.75 Bn in cash and $6.75 Bn in TEVA stock
− Updated guidance from management anticipates closing of deal in June 2016
Completion of deal will boost TEVA’s global leadership position
− Expected to provide 5% revenue CAGR and 10.1% EBITDA CAGR on the pro forma business in 2016-18
− AGN business expected to contribute ~$2.7Bn in 2016 EBITDA
− ~$1.4Bn annual synergies expected in three years, with SG&A synergies in year one, pricing synergies in year two, and
manufacturing synergies in year three
− We estimate the deal will require divestitures of ~$1Bn in the US and EU
− Management guided to double-digit accretion in 2016 followed by 20% accretion in 2017 and 2018
New generics business will offer both branded and international nonproprietary name (INN)
generics and R&D pipeline
− 2/3 of AGN business is US-based and typically has a higher operating profit
− ~320 pending ANDA’s
− ~110 first-to-file (FTFs)
AGN Generics Acquisition
73
Source: Company data, Credit Suisse estimates and analysis
AGN Generic Unit Brings Legacy of Strong Performance Along with
Robust Development Portfolio
AGN Generics Acquisition
Financial Highlights for AGN Generics Business First-to-File Performance for AGN Generics
US Development Portfolio for AGN Generics
3,472 3,916 4,174
978
2,503 2,574
0
2,500
5,000
7,500
2012A 2013A 2014A
North America International
$4,450
$6,418 $6,747
1217
12 6
8
0
10
20
30
2012A 2013A 2014A
Exclusive FTFs Shared FTFs
18
25
74
Source: Company data, Credit Suisse estimates and analysis
AGN Deal Provides Several Significant Generic Opportunities
Management expects to launch between 1,000-1,500 generic launches a year for the coming three
to four years
Some of the most lucrative opportunities are Crestor, Revlimid, Generic Nuvaring, Advair Diskus
and EpiPen as well as Gilenya (MS), Onglyza (type 2 diabetes), Ampyra (MS), and Suboxone (Pain)
AGN recently launched generic Crestor and has 67 days of exclusivity from AZN
− Under the terms of their agreement, Allergan was able to launch its generic version of Crestor 67 days prior to the July 8, 2016, pediatric exclusivity expiration date, at a fee of 39% of net sales to AstraZeneca
− AZN announced US Crestor sales of $636MM in 1Q 2016 alone
Revlimid ANDA is a major opportunity for Teva
− Complex IP situation and AGN is only one filed on that product
− Currently a $5Bn product
− Very difficult to get reference product to run the clinical trial, making it challenging to know when the launch will take place and how it might look
Generic Nuvaring is also an important opportunity
− Rather complex device and not many generic manufacturers will be able to develop it
EpiPen could further boost 2016 generic business, but still awaiting FDA approval
− TEVA has had to push back timing of launch from 1H 2016 to 2H 2016 owing to a lengthy FDA review process
AGN Generics Acquisition
75 Source: Company data, Credit Suisse estimates and analysis
Nexium OTC, Gilenya, and Suboxone Among the More Important
First-to-File Opportunities AGN Brings to TEVA
Branded Drug Molecule Dosage Form Branded manufacturer
2015 US Sales $M -
IMS
30 Month
Stay End
Patents
End
Beyaz Drospirenon, ethinyl estradiol and levomefolate calcium Oral Contraceptive Bayer 109 2015 Feb-30
Fortesta testosterone topical gel endo 20 2015 Nov-18
Suboxone Film Buprenorphine and nalexone Sublingual Thin Film Indivior 1,507 2016 Mar-30
Nuvaring Etonogestrrel and ethinyl estradiol vaginal ring Organon 721 2016 Apr-18
Source: Company data, Credit Suisse estimates and analysis
Recent Rimsa Acquisition Should Also Help Drive TEVA’s Growth in
Emerging Markets
Latin America, and in particular Mexico, is one of the largest and fastest growing healthcare
markets
− Mexico is the second largest healthcare market in Central and Latin America and the fifth overall among emerging markets
− Teva’s management has highlighted Mexico’s favorable demographics and government support while forecasting Mexico to
be in the top ten largest countries in terms of pharmaceutical consumption in the coming five to ten years
Teva recently completed a $2.3Bn acquisition of Rimsa, a pharmaceutical manufacturing and
distribution company in Mexico
− Rimsa had revenue of $227MM in 2014, with YoY growth of 10.6% since 2011
− Along with a portfolio of products and companies, Teva obtained intellectual property, assets, and pharmaceutical patents in
Latin America
− Rimsa transaction is not expected to affect 2016 non-GAAP earnings and is expected to be accretive starting Q1 2017
Catalysts
Close of AGN Deal and Updates on Copaxone, Pipeline Key Near-Term Catalysts
Table of Contents (Click on Titles to Navigate Through Note)
Valuation
Product
Story
Company
Background
Financial
Statements
Investment Risks
Portfolio Manager’s
Summary
Catalysts
79
1Q ‘16 Earnings on May 9th
Allergan Generics deal closing and start of integration in June
May 5th district court decision for generic entry for Treanda
May 12th oral hearing on Copaxone 40mg/ml IPR
June 8th Vantrela ER FDA Advisory Committee Meeting
PDUFA for SD-809 in Huntington’s Disease late May 2016
Launch of Reslizumab
Updates on recruitment/ enrollment of TEV-48125 Phase III trial
IPR decision on first 3 patents re Copaxone 40mg/ml formulation and update on district Court case re Copaxone 40mg/ml
SD-809 read out of Phase III in tardive dyskinesia
QVAR BAI Phase III read out in asthma, followed by FDA submission
Pridopidine read out of Phase II efficacy and safety data in Q3’16
TV-45070 for post-herpetic neuralgia
US and Global launches of over 500 products
Vantrela ER abuse deterrent hydrocodone approval
Topline Phase III data for TEV-48125 in chronic and episodic migraine 2H 2017
Laquinimod read out in phase 3 of RRMS
Additional 20mg Copaxone generics are approved and launched
Laquinimod Phase II read out in Huntington’s disease
Catalysts
1H 2016 2H 2016 2017
Low
Price Sensitivity
High
Source: Company data, Credit Suisse estimates
Close of AGN Deal and Updates on Copaxone, Pipeline Key Near-Term
Catalysts
80
Overview of Catalysts for 2016
Catalysts
Source: Company data, Credit Suisse estimates and analysis
Clinical Results Major Submissions Approvals
PIII QVAR BAI for Asthma NDA QVAR BAI for Asthma NDA SD-809 (deutetrabenazine)
for HD
PIII SD-809 in Tardive Dyskinesia NDA Flutocasone Propionate
RespiClick for Asthma BLA/MAA Reslizumab (IV) for Asthma
PIII TV-46139 (Abuse Deterrent)
for pain NDA
Flutocasone Propionate
RespiClick for Asthma NDA
Bendamustine Rapid
Infusion
PIII TV-46763 (Abuse Deterrent)
for pain NDA
SD-809 (deutetrabenazine)
Tardive Dyskinesia
PII/III Pridopidine for HD NDA TV-46763
(Hydrococodone/APA IR AD)
PII TV-45070 for Postherpetic
neuralgia
PI TV-46000 Risperidone
QM/Q3M for Schizophrenia
PI TV-90105 Abuse deterrent
patch for pain
Investment Risks
Multiple Risks to Our $60 Target Price
Table of Contents (Click on Titles to Navigate Through Note)
Catalysts Valuation
Product
Story
Company
Background
Financial
Statements
Portfolio Manager’s
Summary
Investment Risks
83 Source: Company data, Credit Suisse estimates and analysis
Investment Risks
Multiple Risks to Our $60 Target Price
Failure to close or lower-than-expected synergies and accretion from the acquisition of AGN’s
generics business
− TEVA management has guided to $1.4Bn in synergies from the deal over the course of three years
− Close of deal has already been pushed out from 1Q 2016 until June 2016, highlighting complexity of the transaction and negatively impacting synergies to be obtained in FY 2016
− Regulatory authorities in the EU have approved the deal but also requested a somewhat greater level of divestitures to allow
for completion. Greater levels of divestitures in the US could negatively affect the value of the deal to TEVA
Greater-than-expected erosion of Copaxone franchise
− We expect Copaxone 20mg once daily (QD) to lose new patient share to generic versions of the drug
− However, we do not expect generic versions of Copaxone 40mg three times weekly (TIW) to enter the market until 2019
− Should generic manufacturers win their arguments in court and/or launch generics versions of Copaxone 40mg TIW at risk, this would likely lead to downside to current estimates and also negatively impact investor sentiment on the stock
Clinical risk in the pipeline and failure to complete achieve successful phase III registrational
studies
− Specifically, delays or setbacks in the development of key pipeline products TEV-48125 (anti-CGRP antibody for both
episodic and chronic migraines) and SD-809 (for Huntington’s disease) would be disappointing and present downside risk to our estimates
Commercial risk if new product launches are not able to gain expected market share
− This includes the launch of 1,000-1,500 generic products following the AGN Generics acquisition as well as important branded products in the specialty pharma pipeline
Valuation
We Assign a $60 12-Month Target Price to TEVA Shares
Table of Contents (Click on Titles to Navigate Through Note)
Catalysts
Product
Story
Company
Background
Financial
Statements
Investment Risks
Portfolio Manager’s
Summary
Valuation
86
Blended Target Price Suggests TEVA Is Worth $60/Share
Valuation: $60/Share
Key Assumptions Driving Our Valuation
− We believe a 75%/25% blend of relative/DCF valuation best captures both TEVA’s short-term and long-term outlook, as well as it evolving business model
− On a relative basis, we apply a 11.0x to our
2017 EPS estimate of $5.97 discounted back to 2016 making it $5.48, keeping TEVA at a modest discount to comparable companies
(JAZZ, PRGO, MYL)
− On a DCF basis, we project cash flows through
2025 and then 1% terminal growth after that, along with a 9% WACC (higher than U.S. major pharma companies in our coverage)
Valuation Snapshot
Target Price
DCF Valuation Snapshot
0.0% 1.0% 2.0%
7.0% $82 $94 $111
8.0% $66 $75 $86
9.0% $54 $60 $68
10.0% $44 $49 $54
11.0% $36 $40 $44
* Terminal Value is 53% of EV
Perpetuity Growth
W
A
C
C
Relative Valuation
2017 EPS $5.97
WACC 9%
2017 EPS discounted to 2016 $5.48
Applied PE multiple 11.0x
Peer average multiple 10.4x
Relative PE Valuation $60
DCF Relative Valuation
Valuation $60 $60
Weight 25% 75%
Blended TP
Current Price
% Upside
$60
$54.20
11%
Source: Company data, Credit Suisse estimates
87
TEVA Historically Trades at a Discount to Its US Spec Pharma Peers on
FY1 PE, but Increased Success in Spec Pharma Would Boost Multiple
Valuation
10.3x
13.7x
11.3x
8.8x
16.8x
Peers Avg.,
11.3x
0x
2x
4x
6x
8x
10x
12x
14x
16x
18x
Teva Jazz Perrigo Mylan S&P 500
Peers
FY1 P/E May 3, 2016 YTD Avg. 1 Year Avg. 3 Year Avg. 5 Year Avg.
Teva 10.3x 10.1x 11.3x 10.4x 9.4x
S&P 500 16.8x 16.2x 16.8x 16.4x 15.2x
Peers Average 11.3x 15.4x 15.9x 15.9x 13.8x
FY1 P/E
May 3, 2016 YTD Avg. 1 Year Avg. 3 Year Avg. 5 Year Avg.
Teva 10.3x 2.4% (8.9%) (0.5%) 9.8%
S&P 500 16.8x 4.0% 0.1% 2.5% 10.5%
Peers Average 11.3x (26.7%) (29.3%) (29.2%) (18.1%)
FY1 P/E Difference May 3, 2016 YTD Avg. 1 Year Avg. 3 Year Avg. 5 Year Avg.
Teva vs. S&P 500 (6.5x) (6.1x) (5.5x) (6.0x) (5.8x)
Teva vs. Peers (0.9x) (5.3x) (4.6x) (5.5x) (4.4x)
Premium/Discount Relative to
Source: Company data, Thomson One, Credit Suisse estimates and analysis
Teva (CS Est.) Teva (Cons.) US Major Pharma (ex-JNJ)
US Major Pharma companies include ABBV, BMY, LLY, MRK & PFE
91
6.7%
(1.7%)
12.1%
4.7%5.8% 6.6%
(25%)
(20%)
(15%)
(10%)
(5%)
0%
5%
10%
15%
20%
25%
2015A 2016E 2017E 2018E 2019E 2020E
Sales Growth Change in Operating Margin Change in Others Change in Share Count EPS Growth
We See Sales Growth as Well as Margin Expansion Being Key Drivers of
TEVA’s EPS Growth
EPS Growth Breakdown
Impact of AGN generics acquisition
Impact of AGN generics acquisition
Impact of AGN generics acquisition
Launch of anti-CGRP migraine drug (IP located
in low tax jurisdiction) lowers the overall tax rate
EPS Growth
Source: Company data, Credit Suisse estimates
92
0% 20% 40% 60% 80% 100% 120% 140%
Speciality Avg
Alkermes
UCB
Lundbeck
Merck KGaA
Ipsen
Teva
Baxalta
Shire
Almirall
Meda
CSL
Orion
Recordati
Galenica
PharmaValues NPV as % EV
Other Other health/EV NPV mktd /EV NPV pipeline/EV
less attractive more attractive
Source: PharmaValues, Credit Suisse estimates
PharmaValues
NPV/EV Valuation Based on PharmaValues
93
NPV Sensitivity Based on PharmaValues
40%
60%
80%
100%
120%
140%
160%
180%S
pecia
lity
Avg
Alk
erm
es
UC
B
Lund
beck
Merc
k
KG
aA
Ipsen
Teva
Baxa
lta
Shire
Alm
irall
Med
a
CS
L
Orion
Record
ati
Gale
nic
a
Ph
arm
aV
alu
es E
V/N
PV
LEGEND
● EV as % of NPV valuationshaded bar - impact of success/failure for P3 drugs >50% prob.dotted bar - impact of success/failure for P3 drugs 20-50% prob
Source: PharmaValues, Credit Suisse estimates
PharmaValues
94
HOLT CFROI Adjusts for Accounting Distortions to Capture True
Economic Performance, and is Highly Correlated with Market Valuations
Capitalized and adjusted for inflation: R&D is considered an investment
Add back accumulated depreciation and adjust for inflation: capture full replacement cost
Excluded from asset base as non-operating assets
Incorporate useful asset life through IRR formula
R&D
PP&E
Goodwill
Life
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
0% 4% 8% 12% 16%
S&P 500 Regression R² = 78%
Forecast NTM CFROI (2)
H
OLT
pri
ce
/ b
oo
k(1
)
(1) HOLT EV/ Invested capital. Defined as ([market value of equity + HOLT debt] / [inflation adjusted net assets, including capitalized operating leases and R&D])
(2) Next twelve months (NTM) CFROI based on Consensus estimates for S&P 500 peers
HOLT Analysis
Source: HOLT
Key adjustments from GAAP to HOLT CFROI Correlation between CFROI and Price to Book
95
(1) HOLT EV/ Invested capital. Defined as ([market value of equity + HOLT debt] / [inflation adjusted net assets, including capitalized operating leases and R&D]).
(2) 2017E CFROI based on consensus estimates for peers and Research estimates for Teva.
EXPECTED PROFITABILITY Forecast CFROI(2)
MA
RK
ET
VA
LU
AT
ION
S
HO
LT p
rice /
book
(1)
TEVA
ABBV
BMY
ENDP
JNJ
LLY
MRK
PRGO
PFE
MYL
R² = 0.8593
1.0x
2.0x
3.0x
4.0x
0% 5% 10% 15% 20% 25%
EPS Growth HOLT Analysis
Source: HOLT, Credit Suisse estimates
Relative to Forward Returns on Capital, TEVA Trades Roughly In-Line
With Peers
Correlation of returns on capital (CFROI) to market valuations
Premium/discount to reggression line Median historical premium: 0.1
Current discount of (0.1)
to regression line TEVA
(1) HOLT EV/ Invested capital. Defined as ([market value of equity + HOLT debt] / [inflation adjusted net assets, including capitalized operating leases and R&D]) (2) 2017E CFROI based on Consensus estimates for peers and Research estimates for Teva
EPS Growth HOLT Analysis
Correlation of returns on capital (CFROI) to market valuations
Historical premium/discount of Teva’s valuation to peer regression line
Source: HOLT, Credit Suisse estimates
TEVA’s Current Position on Regression Slightly Below Historical Median
97
0
5
10
15
20
25
2011 2013 2015 2017 2019 2021 2023 Terminal
HistoricalForecast based on Research projectionExtrapolation
CFROI & Discount Rate (in %)
0
10
20
30
40
2011 2013 2015 2017 2019 2021 2023 Terminal
EBITDA Margin (in %)
-5
0
5
10
15
20
25
30
2011 2013 2015 2017 2019 2021 2023 Terminal
Sales Growth (in %)
0.0
0.1
0.2
0.3
0.4
0.5
0.6
2011 2013 2015 2017 2019 2021 2023 Terminal
Asset Turns (x)
EPS Growth HOLT Analysis
Source: HOLT, Credit Suisse estimates
HOLT DCF Based on Research Projections Results in Valuation of
$64 Per Share
98
Base case
valuation
EPS Growth HOLT Analysis
Sensitivity Analysis of HOLT DCF Valuation Shows Range of Outcomes
Based on Incremental Margins and Growth
Source: HOLT, Credit Suisse estimates
99
Teva’s Returns on Capital (CFROI) Expected to be Ranked #3 by 2017
on Back of Second Highest Asset Efficiency
Asset
eff
icie
ncy
(2)
Gross cash flow margins(1)
Bubble size and label
represent CFROI
ABBV: 23%
PRGO: 18%
TEVA: 15%
JNJ: 13%
BMY: 13%
PFE: 11%
ENDP: 10% MRK: 7% LLY: 7%
MYL: 12%
0.15x
0.25x
0.35x
0.45x
0.55x
0.65x
0.75x
15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65%
23%
18% 15%
13% 13% 12% 11% 10% 7% 7%
ABBV PRGO TEVA JNJ BMY MYL PFE ENDP MRK LLY
EPS Growth HOLT Analysis
Source: HOLT, Credit Suisse estimates. (1) Gross cash flow / Sales. Gross cash flow is a proxy for post-tax EBITDA + R&D expense. (2) Sales/ Adjusted invested capital: HOLT invested capital includes capitalized R&D and accumulated depreciation. It excludes goodwill.
Returns on Capital (CFROI) – 2017E
Drivers of Returns on Capital: Margins and Asset Efficiency – 2017E
Company Background
Table of Contents (Click on Titles to Navigate Through Note)
Catalysts Valuation
Product
Story
Financial
Statements
Investment Risks
Portfolio Manager’s
Summary
Company
Background
102
Teva Pharmaceuticals (TEVA) Is a Multinational Company Focused on
Both Generic and Specialty Pharmaceuticals
Teva Pharmaceuticals is a multinational generic and specialty pharmaceutical company based in Israel with a large commercial footprint and vast portfolio of generic, branded generic, branded, and OTC products
Through a series of acquisitions, most notably the recent acquisition of AGN’s generics business, Teva has become the largest generics company in the world
− It also has a number of important specialty assets in oncology, respiratory, women’s health, and CNS
In February 2014, Erez Vigodman was named CEO, following Jeremy Levin’s controversial tenure
− Mr. Vigodman outlined his focus on maximizing efficiencies and organic growth in relevant businesses
− Through a major cost reduction plan, TEVA achieved $600mm in efficiencies in 2014 and another $500mm in 2015
− Since then TEVA has been focusing on investing in its pipeline, with a specific focus on CNS and respiratory
− While oncology and women’s health remain two segments in Teva’s portfolio, they are no longer the focus of organic development
− TEVA is expected to close the deal for Allergan’s generics business in June 2016, building on its leadership position in generics, increasing its number of first-to-file opportunities, and delivering an expected $1.4Bn in cost synergies over the first three years
Company Overview
Source: Company data, Credit Suisse estimates and analysis
103
Specialty Pharma Is Expected to Contribute to Top-Line Growth…
Source: Company data, Credit Suisse estimates and analysis
106
Management Team
Source: Company data
Name Position(s) Comments
Erez Vigodman President and Chief Executive Officer
He has been Teva’s president and CEO since February 2014 and joined Teva’s board of directors in 2009. He earlier served as president and CEO of Adama Agricultural Solutions Ltd (2010-14) and Strauss Group Ltd (2001-09). He is a member of the Advisory Committee to the Israel National Economic Council and the International Advisory Board of the Israel Science Technology & Innovation Policy Institute. He received a B.A. in accounting and economics from Tel Aviv University in 1987 and is a graduate of the program of Management Development at the Harvard Graduate School of Business Administration. He is also a CPA.
Iris Beck-Codner
Group Executive Vice President, Corporate
Marketing Excellence and Communication
She became Teva’s Group EVP, Corporate Marketing Excellence and Communication, in 2014. Earlier, she served as Teva’s senior vice president (2013) and chief communications officer (2014). From 2009 to 2012, she served as Group CEO of McCann Erickson Israel, IPG and from 2002 to 2008 as vice president of marketing & content at Partner Communications Company Ltd. From 1999 to 2000, she served as general manager of Lever Israel, a wholly owned subsidiary of Unilever Israel. She received a B.A. in economic sciences from Haifa University and an M.B.A. with distinction from Bar-Ilan University.
Eyal Desheh
Group Executive Vice President, Chief Financial
Officer
He became Teva’s Group EVP, CFO in 2012. He also served as Teva’s acting president and chief executive officer from Oct 2013 to Feb 2014. From 2008 to 2012, he served as Teva’s chief financial officer. From 2000 to 2008, he served as executive vice president and chief financial officer of Check Point Software Technologies Ltd. From 1996 to 2000, he was chief financial officer of Scitex Ltd. From 1989 to 1996, he served as deputy chief financial officer at Teva. He received a B.A. in economics in 1978 and an M.B.A. in finance in 1981, both from Hebrew University.
Richard S. Egosi
Group Executive Vice President, Chief Legal
Officer
He became Teva’s Group EVP, Chief Legal Officer in 2012. From 2010 to 2012, he served as Teva’s corporate vice president, chief legal officer and company secretary. He has been with Teva since 1995, previously serving as Teva’s deputy chief legal officer and as senior vice president and general counsel of Teva Americas. He received a B.S. in economics from Clemson University in 1984 and a J.D. and M.B.A. from Emory University in 1988.
Dr. Michael Hayden President of Global R&D
and Chief Scientific Officer
He joined Teva as president of Global R&D and chief scientific officer in May 2012. He is also currently the Killam Professor of Medical Genetics at the University of British Columbia and Canada research chair in human genetics and molecular medicine. He is also the founder and senior scientist of the Centre for Molecular Medicine and Therapeutics at the University of British Columbia. Prior to joining Teva, he founded three biotechnology companies (NeuroVir, Aspreva Pharmaceuticals, and Xenon Pharmaceuticals Inc.) and served as chief scientific officer of Xenon from 2000 to 2012. He also served as a director of Med Biogene Inc. from 2010 to 2011. He has received numerous awards, including the Canada Gairdner Wightman Award in 2011, the Order of Canada Award in 2010, the highest honor that Canada can give its citizens for exceptional achievement and the Distinguished Scientist Award of the Canadian Society of Clinical Investigation in 1998, and in 2008 he was named Canada’s Health Researcher of the Year. He received his MB ChB in Medicine in 1975, Ph.D. in Genetics in 1979 and DCH Diploma in Child Health in 1979 from the University of Cape Town. He received his American Board Certification in both internal medicine and clinical genetics from Harvard Medical School in 1982 and an FRCPC in internal medicine from the University of British Columbia in 1984.
Teva’s Senior Management Team (1/2)
107
Management Team
Source: Company data
Name Position(s) Comments
Dr. Rob Koremans
President and CEO, Global Specialty
Medicines
He became Teva’s President and CEO, Global Specialty Medicines in 2013. From 2012 to 2013, he served as president and CEO of Teva Pharmaceuticals Europe. Prior to joining Teva, from 2009 to 2012, he was a member of the Global Leadership Team of Sanofi and served as CEO of Zentiva and as senior vice president generics, strategy, and development at Sanofi. Before joining Sanofi, he served as CEO of Cryo-Save, as a member of the executive board in charge of Global Commercial Operations for Grunenthal GmbH, and as vice president of Europe, Middle East, and Africa for Serono. He received a medical degree from the Erasmus University of Rotterdam in 1988.
Dr. Carlo de Notaristefani
President and Chief Executive Officer, Global
Operations
He joined Teva as president and CEO, global operations in August 2012. Prior to joining Teva, from 2004 to 2011, he was a member of the senior management team at Bristol-Myers Squibb, for which he served as president, technical operations and global support functions, with responsibility for global supply chain operations, quality and compliance, procurement, and information technology. Before joining Bristol-Myers Squibb, he held several senior positions of increasing responsibility in the areas of global operations and supply chain management with Aventis, Hoechst Marion Roussell and Marion Merrell Dow. He holds a Ph.D. in chemical engineering from the University of Naples.
Sigurdur (Siggi) Olafsson
President and Chief Executive Officer, Global
Generic Medicines Group
He joined Teva as president and CEO, global generic medicines group in 2014. He served as president of Actavis Pharma from 2012 to 2014, executive vice president, global generics, at Actavis plc (Watson) from 2010 to 2012 and CEO of the Actavis Group from 2008 to 2010. From 2003 to 2008, he held positions of increasing responsibility within the Actavis Group, including Deputy CEO, vice president of corporate development and CEO of Actavis Inc. U.S. From 1998 to 2003, he held positions of increasing responsibility with Pfizer’s global R&D organization in the U.K. and U.S. From 1994 to 1998, he served as head of drug development for Omega Farma in Iceland. He received a M.S. in pharmacy (Cand Pharm) from the University of Iceland, Reykjavik.
Mark Sabag
Group Executive Vice President, Human
Resources
He became group executive vice president, human resources in August 2013. From 2012 to 2013, he served as global deputy vice president, human resources. From 2010 to 2012, he served as vice president, human resources for Teva’s international group. From 2006 to 2010, he served as vice president, human resources international group and corporate human capital. Prior to joining Teva, he held senior human resources roles with Intel Corporation. He received a B.A. in economics and business management from Haifa University in 1995.
Companies Mentioned (Price as of 03-May-2016) AbbVie Inc. (ABBV.N, $61.77) Bristol Myers Squibb Co. (BMY.N, $71.13) Eli Lilly & Co. (LLY.N, $76.25) Endo Health Solutions (ENDP.OQ, $28.13) Johnson & Johnson (JNJ.N, $112.69) Merck & Co., Inc. (MRK.N, $55.08) Perrigo Company plc (PRGO.N, $96.61) Pfizer (PFE.N, $33.7) Teva Pharmaceutical Industries Ltd. (TEVA.N, $54.2, NEUTRAL, TP $60.0)
Disclosure Appendix
Important Global Disclosures I, Vamil Divan, MD, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for Endo Health Solutions (ENDP.OQ)
ENDP.OQ Closing Price Target Price
Date (US$) (US$) Rating
05-Nov-13 56.22 R
25-Jun-15 82.22 NR
* Asterisk signifies initiation or assumption of coverage.
REST RICT ED
N O T RA T ED
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms repr esenting the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For La tin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12 -month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 57% (40% banking clients) Neutral/Hold* 33% (27% banking clients) Underperform/Sell* 9% (44% banking clients) Restricted 1% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
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Target Price and Rating Valuation Methodology and Risks: (12 months) for Teva Pharmaceutical Industries Ltd. (TEVA.N)
Method: Our $60 target price and Neutral rating is based on 75% relative valuation/25% DCF. Our relative valuation ($60) is based on a 11.0x to our 2017 EPS estimate of $5.97 discounted back to 2016 making it $5.48. Our DCF ($60) is based on cash flows modeled through 2025, a 9% WACC and 1% terminal growth.
Risk: Risks to our $60 target price and Neutral rating include: (1) AGN generics deal fails to close or results in lower synergies or accretion than expected; (2) Earlier-than-expected loss of patent protection for lead product Copaxone (we assume generic entry in 2018); and (3) Setbacks in the development of specialty pharma pipeline assets, most notably TEV-48125 and SD-809.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names The subject company (TEVA.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (TEVA.N) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (TEVA.N) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (TEVA.N) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (TEVA.N) within the next 3 months. As of the date of this report, Credit Suisse makes a market in the following subject companies (TEVA.N, ENDP.OQ).
Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (TEVA.N) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
Important Credit Suisse HOLT Disclosures With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be d irectly related to the specific views disclosed in this report. The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur. Additional information about the Credit Suisse HOLT methodology is available on request. The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur. CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.
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