Bank Hapoalim today released an update on its Teva Pharmaceuticals (Nasdaq:TEVA) ( TEVA) research, after publication of the Israeli drugmaker's second-quarter 2002 results last week.

Analyst Rakefet Levison-Apter maintained a Buy rating for Teva and price target of $78, some 19% above its current market level. She sees Teva continuing to shop for suitable European generic drugmakers, despite snapping up companies in France and Italy during the second quarter.

Meanwhile, the key United States market is increasingly facilitating the penetration of generic pharmaceuticals in order to control health costs, she says. In July the United States Senate Committee on Health, Education, Labor, and Pensions approved a bill plugging loopholes in the Hatch-Waxman law of 1984, which works in Teva's favor, she notes. The Hatch-Waxman act helped drug companies extend their patent protection.

Another good sign for Teva, Levison-Apter says, is a Food and Drug Administration notice from April that it would step up the examination of generic drugs, while promoting their use among doctors. In this context, the FDA said it would shorten the approval period of generics from 81 months to 21, for which purposes it added 41 jobs.

Levison-Apter estimates that Teva's third-quarter sales will be $595 million, up 18% from the same quarter of last year. If Teva gets the FDA nod for Augmentin, an antibiotic, and-or wins its patent case over remeron, its results should be higher than that, she writes.

Although in May 2002 the U.S. courts rejected GlaxoSmithKline's (London:GSK) patents for the antibiotic Augmentin, Teva has yet to receive the OK to market the generic version in the United States. Augmentin is expected to generate Teva some $150 million a year, based on a $2 billion market for the original drug.

Impax Laboratories (Nasdaq:IPXL), with which Teva has a strategic pact covering 12 delayed-release generic drugs, recently announced two tentative approvals for drugs whose patents expire by year-end. Levison-Apter sees the two contributing over $150 million a year from 2003, during the exclusivity term.

Although the Israeli drugmaker bought Bayer Classics of France in April, and the Italian unit of Honeywell in May, Teva is not close to exhausting its acquisitions potential in western Europe, Levison-Apter says. Currently 60% of Teva's income derives from North America and 25% from Europe, proportions the company wants to change to 50%-30%. However, if offered something toothsome in the U.S., Teva wouldn't say no, she adds.

Levison-Apter believes that Teva's relatively high multiple, compared with its peers, is justified, given the company's unique characteristics, including the biggest generic pipeline in the industry, its financial strength, its quality management, and its leading market position.

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