- Teva Pharmaceutical Industries Ltd., already buffeted by a deteriorating market for its generic drugs, on Thursday substantially lowered its revenue forecast for 2017, citing an earlier-than-expected launch in the U.S. of a copycat version to its top-selling multiple sclerosis brand Copaxone.
- The Israeli drugmaker now expects to record between $22.2 billion and $22.3 billion in revenues this year, down markedly from the company's previously estimated range of $22.8 billion to $23.2 billion.
- Shares in Teva fell by a fifth in response to the worsening outlook, extending a sell-off that has now shaved more than 50% off of the company's share price since the generics maker last reported earnings. Declining cash generation from operations has also sparked worries in Teva's ability to reduce its debt, which sits at just under $35 billion.
Rival generics maker Mylan N.V. took Teva by surprise in October, winning approval from the Food and Drug Administration for its copy of Copaxone (glatiramer acetate) 40 mg.
A generic to the 20 mg version of Copaxone, marketed by Novartis AG as Glatopa, has been on the market since 2015. But nearly nine in ten patients taking Copaxone are treated with the 40 mg dose, making Mylan's entry a damaging blow.
Largely as a result of the unexpectedly early launch, Copaxone revenues in the U.S. declined 8% to $802 million during the third quarter. Teva said Mylan's launch would reduce earnings per share by 30 cents.
While company executives said Copaxone prescription volumes were coming in near expectations, the presence of a generic competitor has hurt Teva on pricing.
At the same time, Teva is facing a challenging market for its core generics business. An increasing number of generic approvals by the FDA has increased competition, leading to higher pricing erosion.
In the second quarter, Teva had seen a 6% price erosion. But that has now increased to 10% in the third quarter and the drugmaker says that pressure will continue.
"In terms of the rest of the year, we expect that these price erosions will remain at these elevated levels," said Teva generic head Dipankar Bhattacharjee on a Nov. 2 call with analysts.
Customer consolidation has also had an impact on pricing, as group purchasing organizations command higher purchasing power.
"The Teva business model is now upside down," wrote Cowen & Co. equity analyst Ken Cacciatore in a Nov. 2 note, highlighting how the drugmaker is now spending more on generic R&D then it expects to gain from new generic launches.
On Thursday, Teva said new generic launches would only contribute approximately $400 million of revenues this year, a $100 million cut to its previous projection of $500 million.
Bhattacharjee said a delay in winning approval for a copycat version of Lialda (mesalamine) and a court decision that went against the company over another generic contributed to the reduction.
Although Bhattacharjee presented the lower forecast as the result of one-off events, that gap between spending and new revenues isn't winning the company any friends on Wall Street.
"Clearly, if this persists this model will just continue to destroy wealth," wrote Cowen's Cacciatore. "We know what has to be done (dramatically cut costs), the new CEO just now needs to execute."
That new CEO is former Lundbeck A/S Chief Kåre Schultz, who was tapped to lead Teva in September. While Schultz will bring decades of experience in generic and specialty drug markets, he is also the fifth CEO to head the Israeli drugmaker — a stretch of turnover that has left the company looking rudderless.
"I recognize the significant debt burden that Teva is currently under, and it will be an absolute priority for me that we stabilize the company's operating profit and cash flow in order to improve our financial profile," said Schultz, who spoke briefly on the Nov. 2 call.
Schultz can look to some near-term catalysts that could boost Teva's specialty medicines business, such as a recent launch of Austedo (deutrabenazine) for the treatment of Huntington's disease and tardive dyskinesia, as well as a potential approval next year for the company's experimental migraine treatment fremanezumab.
But his success will largely be gauged by how well he can stabilize the company's generics business and reduce leverage to give the company more flexibility. With Copaxone revenues now endangered, that task will be an uphill battle.