What happened
Shares of Teva Pharmaceutical Industries (NYSE: TEVA), a developer of branded and generic drugs and the largest generic drugmaker in the world, tumbled another 22% in October, according to data from S&P Global Market Intelligence. While the company is facing a plethora of headwinds, as evidenced by its 70% loss over the trailing year, its October weakness can be traced to a single negative event early in the month.
So what
Following the closing bell on Oct. 3, 2017, rival Mylan (NASDAQ: MYL) announced that it had been granted approval for a generic version of the three-times-a-week 40 mg injection of multiple sclerosis drug Copaxone, along with a 20 mg once-daily injection. Copaxone is Teva's top-selling branded drug, which accounted for more than $4 billion in sales last year, and at one time comprised around 20% of its annual sales. As a branded, high-margin therapy, it's also one of the company's biggest profit-makers.
Image source: Getty Images.
The entrance of generic Copaxone into the marketplace wasn't unexpected, but the news was nevertheless devastating for two reasons. First, a generic entrant wasn't anticipated until 2018, meaning the Mylan approval came a few months ahead of schedule. That's bad news for Teva, which has been trying to milk Copaxone for everything its worth in order to pay down its debt.
The other issue with this approval is that it included the 40 mg three-times-a-week formulation. Teva reformulated Copaxone from a once-daily to three-times-weekly injection in order to avoid generic competition, but lost a patent case that could have protected its 40 mg formulation earlier this year.
Long story short, there's a decent chance of Copaxone facing some very tough competition in 2018 from Mylan's generic Copaxone, which will drag on Teva's operating results.
Now what
Making matters worse, on top of the bribery settlement, debt levels, and management changes, the company wound up reporting weaker-than-expected third-quarter operating results before the opening bell on Thursday, Nov. 2. Despite reporting a 4% increase in constant-currency sales, largely helped by its acquisition of Actavis, Teva noted that generic pricing weakness accelerated during the quarter, and that it wouldn't get any better throughout the fourth quarter. This resulted in less cash flow and the need for Teva to slash its full-year sales and profit guidance once more.
Despite these near-term issues, I remain bullish about Teva over the long run and am eager to add to my position in about a week, once the volatility settles down a bit.