Teva Pharmaceutical: Investment Opportunity During Fed Rate Hike (NYSE: TEVA)

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Teva Pharmaceutical (NYSE: TEVA) management continues to expand its product pipeline, securing approval of Roche Holding’s biosimilar Lucentis (OTCQX:RHHBY) (OTCQX:RHHBF) in Europe and expanding the efficacy and safety database of the company’s main branded drugs, interest of the scientific community and patients. Increased R&D spending is starting to pay off, gradually increasing the company’s cash flow and a possible New York opioid litigation settlement before the end of 2022 will boost long-term investor interest and could potentially pay dividends from 2025.

The impact of the Zantac lawsuit on the financial situation of Teva Pharmaceutical

The Zantac lawsuit is a litigation of people taking generic and/or branded versions of Zantac who first received FDA approval in 1983, gradually increasing the number of indications for use. According to this lawsuit, this drug, due to prolonged storage, may contain an increased content of N-nitrosodimethylamine (NDMA), which is a probable carcinogen and therefore can cause cancer. In the lawsuit, the plaintiffs allege that the makers of the brand name and generic versions of Zantac marketed a product that could cause serious harm to health and failed to warn consumers of these serious risks. August 16, 2022In response to thousands of lawsuits, GSK (NYSE:GSK) (OTCPK:GLAXF) issued a press release reminding investors once again that numerous studies conducted by independent cancer researchers, the FDA and the EMA found no evidence of a causal link between ranitidine therapy and the development of cancer in patients.

Source: Author's elaboration, based on GSK press release

Source: Author’s elaboration, based on GSK press release

And although Teva Pharmaceutical does not disclose in its financial statements the number of prescriptions written for the generic version of Zantac, drugs containing ranitidine hydrochloride as an active ingredient have been produced by dozens of other pharmaceutical companies. As a result, the proportion of people who could theoretically be harmed by Teva Pharmaceutical’s medicines is relatively small.

Source: Author's elaboration, based on FDA

Source: Author’s elaboration, based on FDA

Additionally, Teva has retired the New Drug Application short number 075557 for the generic version of Zantac in 2016.

Source: Author's elaboration, based on FDA

Source: Author’s elaboration, based on FDA

Thus, it has been approximately six years since the recall of the generic version of Zantac from Teva. Although it is unfortunate to say, even if there was a relationship between taking the drug and developing cancer, most people have already died from the development of the disease and therefore the number of potential lawsuits against Teva are low. For examinationmple, the 5-year relative survival rate of patients advanced pancreatic cancer is only 3%who means that on average, these people have a 3% chance of living five years after diagnosis compared to the average chance of a healthy person living the same period of time.

Source: Author's elaboration, based on the American Cancer Society

Source: Author’s elaboration, based on the American Cancer Society

In my view, it is unlikely that plaintiffs’ attorneys will be able to prove that it was the impurities in generic Zantac that harmed their clients’ health after such a long time since the drug was taken. Accordingly, I do not see these lawsuits against the company harming Teva Pharmaceutical’s financial condition. In addition, according to Forbes, citing Drugwatch, lawyers are no longer willing to represent people who have taken the generic version of Zantac. Thus, this further reduces the potential damages in this case, not only against Teva but also against generic manufacturers in general. If the plaintiffs win, the makers of the brand name version of the drug will bear the brunt. Additionally, the company has billions of dollars in legal reserves that could be used to pay for Zantac’s lawsuit. At the end of the 2nd quarter of 2022, these reserves amount to approximately 3.93 billion dollars, or 45% more than in 2021.

Source: Author's elaboration, based on Quarterly Securities Reports

Source: Author’s elaboration, based on Quarterly Securities Reports

Conclusion

In the third quarter of 2022, Teva Pharmaceutical continues to expand its product portfolio by obtain approval from Ranivisio, Roche Holding’s biosimilar Lucentis in Europe, becoming the second company after Biogen to achieve this. The lack of stiff competition in Europe and Ranivisio’s gradual geographic expansion will allow the Israeli company to capture a large chunk of Roche Holding’s multi-billion dollar branded drug sales and thus increase the operating profit of Teva. Additionally, key drug Ajovy (fremanezumab), with sales of $88 million in the second quarter of 2022, up 25.7% year-on-year, continues to garner clinical data fueling increased interest. clinicians and patients. At the Migraine Trust International Symposium, the company presented data demonstrating the ability of fremanezumab to significantly reduce both the number of monthly migraine days and the number of monthly headache days and other depressive symptoms compared to placebo. In my opinion, the recent decline in the company’s stock price due to the Zantac lawsuit against the pharmaceutical companies will have a negligible impact on the financial situation of Teva Pharmaceutical. The gradual increase in the number of biosimilars and generics in the company’s portfolio will help Teva Pharmaceutical shares recover faster against the S&P 500 (NYSEARCA:SPY) amid rising Fed interest rates , thus attracting the interest of long-term investors.