Israel-based generic drug maker, Teva Pharmaceutical Industries Limited TEVA, saw its shares decline 9.4% last week with the company suffering a fresh setback in the form of FDA approval of a generic version of the company’s top-selling branded drug, Copaxone (multiple sclerosis). Mylan NV MYL gained FDA approval for its generic version of the 40 mg (thrice weekly) dosage as well as the once-daily 20 mg formulation of Copaxone. With Mylan being among the first applicants to challenge the 40 mg patent, the company could enjoy 180 days of exclusivity. Mylan has launched both products. Mylan also gained approval for the 40 mg dose in the EU.
The FDA approval of generic Copaxone is a major blow for Teva which is currently facing a whole lot of challenges. Teva issued a statement saying that the launch of the 40 mg formulation before the final resolution of pending patent infringement lawsuits with Mylan will be treated as an “at-risk” launch – this means Mylan would have to pay significant damages if the court upholds the patents protecting the drug.
Copaxone brought in total sales of $1.99 billion in the first half of 2017. At the end of the second quarter of 2017, Copaxone 40 mg accounted for more than 85% of total Copaxone prescriptions in the United States.
The entry of the 40 mg formulation and the entry of a second generic version of the 20 mg formulation (Sandoz and Momenta have been on the market for quite a while with Glatopa, a generic version of the 20 mg dose) is expected to cut Teva’s 4Q earnings by at least 25 cents per share. Additional details should be out when the company announces third quarter results on November 2. The entry of generic Copaxone just adds to the existing list of problems being faced by Teva.
Generic pricing erosion remains a huge issue for generic companies like Teva. The sharp decline in generic drug prices, while a blessing for patients, is proving to be a major challenge for generic drugmakers as well as drug distributors.
Consolidation in the industry has increased the ability to negotiate lower prices for generic drugs leading to increasing price erosion and decreasing volume. Moreover, the FDA is speeding up the approval of generic drugs which means more competition, increasing price cuts and decreasing volume. Teva said that price erosion was around 6% in the second quarter and is expected to increase to high-single digits over the remainder of the year. All these headwinds will persist for the U.S. Generics unit into the near future, resulting in lower revenue and profit in this segment in 2018 and potentially 2019.
Meanwhile, the company said that it does not expect any earnings contribution from its businesses in Venezuela given the significant devaluation of the Venezuelan currency. Teva also cut its dividend by 75%.
Teva has many challenges ahead – paying down debt, divesting non-core businesses to increase focus on core areas and generate cash, delivering on the pipeline and getting the U.S. generics business back on track.
The company has been working on addressing these issues and recently announced the appointment of a new CEO (Read more: Why Did Teva Pharmaceuticals Stock Soar Today?). Teva has also made significant progress in the divestment of non-core businesses. However, the entry of Copaxone 40 mg is a major setback for the company and it could well be a while before Teva is able to get back on track.
Teva is a Zacks Rank #4 (Sell) stock. The company has seen the Zacks Consensus Estimate for current-year earnings being revised 1.9% downward over the last 7 days while the Zacks Consensus Estimate for 2018 has been revised 5.1% downward over the last 7 days. Teva has lost 56% of its value year to date versus the 20.5% decline of its industry.
While Teva deals with these challenges, here is a look at five drug companies that sport a strong Zacks Rank and look well-positioned.
Celgene Corporation CELG: Celgene is focused on the discovery, development and commercialization of innovative therapies for the treatment of cancer and inflammatory diseases. The company has several blockbuster products in its portfolio including Revlimid, Pomalyst, and Otezla. Celgene has a rich and promising pipeline as well with key data readouts lined up for the next two years.
Celgene, a Zacks Rank #2 (Buy) stock, has gained 20.3% year to date, outperforming the 14.1% rally of the industry it belongs to. The company also has a VGM Score of A. The VGM Score is a useful tool that allows investors to gain an insight into a stock’s strengths and weaknesses.
Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or #2 offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Pfizer Inc. PFE: Pfizer is focused on the development and commercialization of a wide range of medicines and vaccines as well consumer health care products. During the first half of the year, the company paid $8.9 billion in dividends and share buybacks to its shareholders including a $5 billion accelerated share repurchase program.
Pfizer, which expects 2017 revenues to be affected by about $2.5 billion due to loss of exclusivities (LOEs), is working on bringing new products to market to make up for lost sales. The company has 15 potential blockbusters lined up for the next 5 years with about half of these potentially by 2020. Focus also remains on growing new products like Ibrance, Eliquis and Xeljanz. Meanwhile, the impact of LOEs should continue declining in the coming years (about $2 billion in 2018 as well as 2019, $1 billion - $2 billion in 2020; $1 billion in 2021, and $0.5 billion or less from 2022 to 2025).
Pfizer, a Zacks Rank #2 stock, carries a VGM Score of B.
Amgen AMGN: Amgen, one of the most well-known names in the biotech industry, has a presence in the oncology/hematology, inflammation, nephrology, bone health and cardiovascular disease markets. Key products include Enbrel, Neulasta, Aranesp, Prolia, Xgeva, Epogen, Kyprolis, Repatha, and Blincyto among others. Most of these products are either blockbusters or have blockbuster potential. Amgen has a deep pipeline with the company working on bringing new products to market to combat the impact of potential biosimilar competition for mature products in its franchise. The company has been returning value to shareholders in the form of share buybacks and dividends.
Amgen is also a Zacks Rank #2 stock with a VGM Score of B. The stock has gained 27.1% year to date, outperforming the 14.1% rally of the industry it belongs to.
Vertex Pharmaceuticals VRTX: Vertex is a key player in the cystic fibrosis (CF) market. The company holds a strong position in this market with two marketed products – Orkambi and Kalydeco. Vertex is working on expanding its CF portfolio and is currently seeking both FDA and EMA approval for a tezacaftor/ivacaftor combination. With the FDA granting priority review, a response should be out by Feb 28, 2018.
Vertex, a Zacks Rank #1 stock, has gained 110.5% year to date, substantially outperforming the 14.1% rally of the industry it belongs to.
Ligand Pharmaceuticals Incorporated LGND: Ligand’s business model is based on developing or acquiring royalty revenue generating assets and coupling them with a lean corporate cost structure. The company is focused on the development and licensing of biopharmaceutical assets. Ligand’s Captisol formulation technology has allowed it to enter into several licensing deals and generate royalties. The company’s partners include big names like Amgen and Novartis among others. Ligand also has licensing deals based on its OmniAb technology.
Ligand’s recent decision to acquire Crystal Bioscience, a leader in avian genetics and the generation of fully-human therapeutic antibodies, is expected to boost the company’s 2018 revenues by at least $5 million and earnings by at least 9 cents per share.
Ligand, a Zacks Rank #1 stock, has gained 39.4% year to date, substantially outperforming the 14.1% rally of the industry it belongs to.
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