Why Teva May Be Back From the Dead

The Israeli-based maker of generic drugs has struggled for the past few years amid CEO turmoil, middling performance and, especially, its $6.8 billion acquisition of specialty drug maker Cephalon, which has not contributed much to profit.

Once an investor darling, the company’s generic growth was hit because fewer branded drugs were coming off patent. Meanwhile, patents were expiring on Teva’s top-selling branded product, multiple sclerosis drug Copaxone.

Worse, then-CEO Jeremy Levin came on board in December 2012 promising to turn around the company. Instead, he became embroiled in disputes with his board and was gone in 10 months.

What is different now is that investors and the board like the new CEO, Erez Vigodman. He had been a director himself but has experience turning around struggling companies.

The company has pledged to cut $2 billion in costs by 2017. Even if Copaxone goes off patent on June 1, it is not clear if generic versions will deliver the same results to patients. Plus, the company has succeeded in moving some Copaxone patients to newer versions of the drug.

The consensus is that Teva will earn $4.53 a share in 2014 and $4.50 in 2015, with revenue in both years flat at around $19 billion. The company earned $5.01 in 2013. But if no generics to Copaxone reach market, Teva says earnings this year could hit $4.80 to $5.10. Revenue could top $20 billion.

The shares fell by nearly half between 2010 and September 2011. They did not start to move again until Levin was gone. In the fourth quarter, George Soros’s Soros Fund Management added 5.7 million shares to its stake. The shares were trading at $48.76, up 1.6%, on Friday and just below its 52-week high.

If the company is able to show its turnaround is real, analysts think the stock could move 30% or so higher, in line with rivals Mylan Inc. (NYSE: MYL) and Activis PLC (NYSE: ACT). That’s a big if, but the gains since November suggest investors like the odds.