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Teva Pharmaceutical Industries Ltd ADR TEVA

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Morningstar’s Analysis

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Refreshing Our Generic Drug Manufacturer Valuations and Competitive Analysis

Dylan Finley, CFA Equity Analyst

Analyst Note

| Dylan Finley, CFA |

Following an extensive review of the generic drug manufacturers under our coverage, we have revised our fair value estimates to better align with our expectations for revenue growth and margin erosion over the next five years. We are lowering our fair value estimate for Viatris to $14 per share from $25, lowering our fair value estimate for Teva Pharmaceutical to $9 per share from $20, and are raising our fair value estimate for Dr. Reddy’s Laboratories to $60 per share from $49. The shares of all three appear fairly valued in the market today. We are maintaining our no-moat rating and stable moat trend assessment for Viatris and Teva, as we believe heavy exposure to the U.S. and other pure generic markets where small-molecule generic drugs are highly commoditized will continue to pressure returns, despite the companies’ burgeoning investments in relatively more differentiated areas like complex generics and biosimilar drugs. We believe Dr. Reddy’s comparatively more differentiated approach lends itself to a narrow moat rating, with higher exposure to emerging markets (particularly India) where brand recognition translates to market power and stable pricing.

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Company Profile

Business Description

Based in Israel, Teva is one of the world’s largest generic drug manufacturers, with over 3,500 products marketed in over 60 countries. While a majority of its revenue is attributed to prescription generic drugs, Teva develops and markets its own branded specialty and biopharmaceutical products, primarily in the U.S. and in Europe. The company’s branded portfolio generates one fifth of total revenue and consists of patented therapies targeting central nervous system conditions (Austedo, Ajovy, Copaxone), oncology (Bendeka/Treanda), and respiratory conditions (ProAir, Qvar). While global competition has facilitated the commodification of small-molecule generic drugs, Teva’s portfolio rationalization has resulted in less overall price erosion versus peers.

5 Basel Street
Petach Tikva, 4951033, Israel
T +972 39148213
Sector Healthcare
Industry Drug Manufacturers - Specialty & Generic
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 40,216