The fall in the price of Copaxone, Teva Pharmaceutical Industries Ltd.'s (NYSE: TEVA; TASE: TEVA) drug for treatment of multiple sclerosis, has been steeper than expected, and the company's battered share plunged further late last week. The share price ended the week's trading on Wall Street at under $15, a 15-year low, and reflecting a market cap of just over $15 billion.
Teva's share was down 4.5% in Tel Aviv yesterday, and has now fallen by 51% since August, eliminating all of last month's gains following the appointment of Kare Schultz as CEO.
The latest blow to Teva's shareholders was the announcement two weeks ago by rival Mylan N.V. (Nasdaq: MYL; TASE: MYL) that it had obtained approval from the US Food and Drug Administration (FDA) to market its generic version of Copaxone. Momenta's generic version of 20-milligram Copaxone (Glatopa) has been on the market since 2015, but until now, there has been no generic competition for the 40-milligram dose used for most patients.
The change in Teva's profit multiple
Although Teva previously predicted that there would be no generic version of Copaxone on the market in 2017, the company added that should such competition materialize, it would decrease the company's fourth quarter profit per share by $0.20-0.25. When Mylan announced that it had received approval for its generic product, Teva said its profit would go down by $0.25 per share ($269 million). It now appears that the earlier estimates are liable to prove overly optimistic. Mylan launched its generic version of Copaxone at a 25-30% discount on the price of the original drug, and Teva quickly responded by cutting its prices.
"The loss of $0.25 per share in the fourth quarter corresponds to estimates of a 25% loss in market share and a 15% cut in the price," writes Leader Capital Markets Ltd. (TASE:LDRC) analyst Sabina Levy. She adds that when Momenta launched Glatopa in 2015, it achieved a 20% market share three weeks after the launch, but that was after Teva had already launched 40-milligram Copaxone, without which the generic product's market penetration would have been greater.
"Under a realistic and conservative scenario, it could have been assumed the generic version of 40-milligram Copaxone would be able to reach a 25% market share in the coming months with little erosion in the price, because Mylan currently faces no competing generic product, and it could have been assumed that Mylan would want to take advantage of its momentum, and to avoid any aggressive price competition," Levy explains.
Levy writes that the current estimates of the price erosion is double - 25-30%. According to her analysis, a 25% drop in the price and a 25% loss in market share will push Teva's profit per share down by $0.29, while a 30% drop in the price and a 30% loss in market share will cost Teva $0.33 per share in profit.
"What is happening is that the market is seeing more aggressive competition than it expected, and there is concern that the estimates for the fourth quarter will prove to be over-optimistic. The market is anxious about additional damage in the quarter, and of course we do not know what will happen in 2018. In any case, there is no doubt that these developments will have a further negative effect on Teva's results," she adds.
"Globes": What is Mylan's interest in pushing the price down so far when it and Teva are the only competitors in the market for 40-milligram Copaxone?
Levy: "On the one hand, it was believed that Mylan would launch its product at a higher price, because Momenta has yet to receive approval for its generic version of 40-milligram Copaxone. On the other hand, the absence of any competing generic product is enabling Mylan to grab as big a market share as it can. If a patient is already receiving a generic product, he or she will have less incentive to switch later to another generic product."
Teva's share has hit a low point. Where is the bottom?
"Today's price is greatly affected sentiment and anxiety on the market. If you compare Teva's pricing to that of Mylan, Teva's generics business is bigger in its pipeline of products. Mylan has a richer pipeline of biosimilar products, but lacks Teva's innovative products pipeline, which includes products for treatment of migraine headaches and motor disorders.
"It is true that Copaxone has been hit, but Teva has generics business and a product pipeline. There is unquestionably uncertainty about forecasts in the short term, and Teva's debt and the risk of its leverage cannot be ignored. In the long term, however, it is economically irrational to assume that Teva will continue to be underpriced in comparison with Mylan."
Last week, Mylan was traded at a 7.1 multiple on its expected results for next year, compared with a multiple of only 3.9 for Teva. In the months preceding the dive in Teva's share price (following the company's weak second quarter results, the downward revision in its guidance, and the cut in its dividend), both shares were traded at around a multiple of seven.
Published by Globes [online], Israel Business News - www.globes-online.com - on October 16, 2017
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