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Aug 22, 2016

S3 BLACKLIGHT: Teva Pharma Short Interest Climbs on Copaxone Patent Risk

Short interest in Teva Pharmaceuticals (TEVA US) dropped below $1 billion for the entire 1st quarter of 2016 after rising to $1.1 billion after Teva issued $6.75 billion of stock and convertible bonds to finance its Actavis Generics and Rimsa acquisitions.

In May, Fitch put Teva on its negative watch list with the possibility of a credit rating drop from BBB+ to BBB- due to elevated leverage risk coming from its recent acquisitions and patent risk on its Multiple Sclerosis drug Capaxone which makes up over 21% of Teva’s pre-Actavis revenues. Short interest immediately increased and topped out at $1.4 billion, up 30% year to date.

By the end of June, short interest fell back down to $1 billion, down 28% from the end of May as its stock price fell to a year to date low of $48.53.

Since June, Teva short interest is back up to $1.2 billion, up 20%, as Teva awaits the U.S. patent Office’s ruling on the exclusivity of its Multiple Sclerosis drug Copaxone.

Teva’s revenue stream will be more diversified with the acquisition of Allergan’s generic drug maker Anda and its gross margins will also improve because of the minimal R&D inherent in the generic segment of the pharma  market. Short sellers may be positioning themselves for possible negative patent news on Copaxone.

The S3 Short Velocity Indicator, a measure of the real-time change in shorting activity, is trending upwards but until we see a spike in the S3 Crowding Monitor, a measure of the magnitude of shorting activity relative to market cap and float, we are not seeing a strong momentum move in short activity for TEVA.

The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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