Israel-based drugmaker, Teva Pharmaceutical Industries LimitedTEVA is in a major mess right now. The question now is how will the world's largest generic maker recover?
Teva carries a Zacks Rank #5 (Strong Sell).
The company has seen its earnings estimates for 2018 and 2019 decline by 20% and 16%, respectively over the past 30 days.Teva's shares have slumped 45.5% in the past year compared with the industry 's decline of 32.5%.
A generic version of Copaxone 20 mg is being marketed by Momenta Pharmaceutical, Inc. MNTA and Sandoz - Novartis' NVS generic arm - since 2015 while Mylan (MYL) launched its version of the 20 mg formulation in October 2017. In the same month, in a major blow to Teva, Mylan launched (at-risk) its generic version of the 40 mg thrice-weekly formulation, much earlier than expected. With the entry of the generic version of the 40 mg formulation and the entry of a second generic version of the 20 mg formulation, there has been rapid erosion in sales of Copaxone. Moreover, a second generic version of the 40 mg formulation was launched by Sandoz in February this year, much earlier than expected in April.
In 2017, Copaxone generated sales of $3.8 billion, down 10% from 2016 levels. In 2018, Teva expects Copaxone to generate sales of $1.8 billion globally, significantly lower than $3.8 billion in 2017 as the franchise continues to erode.
Meanwhile, other drugs in the Specialty segment are also facing generic pressure. A generic version of Azilect was launched in the United States in January 2017 and sales have started to decline sharply, while ProAir is also expected to see generic competition during the second half of 2018
The U.S. generics industry is facing significant competitive and pricing pressure, thereby hurting sales in Teva's Generic segment. An increase in FDA generic drug approvals and ongoing customer consolidation are resulting in additional competitive pressure in the industry. The ongoing consolidation of customers in the generics industry led to increasing price erosion. The consolidation in the industry has increased the ability to negotiate lower prices for generic drugs. Accelerated FDA approval of additional generic versions of competing off-patent medicines, increased competition for its largest product - Concerta authorized generic, lower-than-expected contribution of generic launches and stringent government regulations are also hurting sales of the Generics segment.
The challenges in the U.S. generics market are expected to continue in 2018. Management expects lower revenues and profits in U.S. Generics unit in 2018 and potentially in 2019 due to generic industry pressure.
In fact, U.S. Generics segment sales are expected to decline roughly 20% from 2017 levels in 2018 due to ongoing price erosion and generic Concerta.
Teva's debt was approximately $32.5 billion at the end of 2017, much higher than approximately $10 billion at the end of 2015 due to the $27 billion debt to finance Allergan's AGN Actavis Generics acquisition. With increased debt, the company's borrowing costs have increased significantly, which is hurting profits.
As if all these recurring issues were not enough, on the fourth-quarter conference call, Teva announced a potential delay in the approval of fremanezumab, its anti-CGRP for episodic and chronic migraine. In January, Teva's partner Celltrion received an FDA warning letter for a facility in South Korea. This facility manufactures the API for fremanezumab. A remediation of the issue by Celltrion could result in a delay in approval of fremanezumab.
Teva's new CEO Kare Schultz announced a restructuring plan in December to turn around the company's fortunes. Teva has a new organizational structure in place, is closing plants, cutting down its generics portfolio, divesting non-core assets, eliminating low-value R&D projects, and aims to cut its global workforce by more than 25% over the next two years to revive growth.
However, resumption of organic growth seems unlikely prior to 2019, especially as Teva faces erosion of its largest product, Copaxone.
The revelation that Warren Buffett's Berkshire Hathaway owns a big stake in the company recently gave a boost to the stock. However, we believe this is only a temporary impact. The downtrend in share price will continue this year as well with nothing going right for the stock.
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