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Teva tumble may not be over

August 7, 2017

Generic drug maker Teva Pharmaceutical Industries Ltd.’s shares have declined for eight consecutive days, including Monday, and losses could extend about 16% more, Morgan Stanley analyst David Risinger said.

Proclaiming the company “cloudy on all fronts,” Risinger downgraded the company to underweight and reduced its price target by 16% to $16. Teva TEVA, -6.89% shares were valued at $18.95 midday Monday.

“We believe that Teva’s disappointing generic business performance will take more time to improve given a combination of the generic industry’s intensifying secular challenges and Teva’s own difficulty in executing on its pipeline,” Risinger said.

Read: The generic drug bloodbath continues for a second day, with Teva leading the way

“Despite the stock collapsing by 34% since 2Q:17 results on Aug. 3, we believe Teva’s current ~8.2x EV/2018e EBITDA… is still too high as the multiple is marginally above than 5-year historical average of 8x, which includes 2014-2015 — during which time the generic industry enjoyed price inflation and gCopaxone risk was further away,” he said, referring to Teva’s key multiple sclerosis drug, which is expected to face new competition sooner than was previously thought.

See more: AmerisourceBergen stock plummets 9% alongside other companies affected by negative generic price trends

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The NYSE-listed stock began its decline on July 27, but share losses intensified to 24% on Thursday, when the company reported a second-quarter profit miss and slashed its 2017 outlook. The stock fell 13.3% the next day, and shares declined 8.3% in extremely heavy Monday midday trade.

Teva shares have taken the biggest hit on investor concerns about lower generic prices, but the stocks of other generic drugmakers, including Mylan MYL, -2.16%  , and drug distributorshave also declined.

Teva’s losing streak is the company’s longest since an eight-session streak ending October 5. The three-session stock decline since the company reported earnings on Thursday has been its largest drop in history.

Teva shares could rise to $31 without generic Copaxone competition in 2018 and with generic business upside, Risinger said, but could fall to $9 if Copaxone competition is more intense and generics business has more downside.

In addition to generic price pressure, Teva overhangs include Allergan selling its about $100 million stake in the company, launch of Copaxone generic competition and potential debt issues prompting a renegotiating of loan terms, he said.

A new chief executive officer—Teva has been without a permanent CEO since earlier this year—could improve the company’s outlook, as could more cost-cutting, Risinger said.

Teva shares have plummeted 36.35% over the last three months, compared with a 3.3% rise in the S&P 500 SPX, +0.09%  .

http://on.mktw.net/2vIyorD

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