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Teva Shares Plummet After Mylan's Copaxone Generic Gets FDA Approval

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Shares of Teva Pharmaceuticals TEVA opened more than 13% lower on Wednesday, plunging close to their 52-week low in the process. The struggling Israeli pharma firm, which has faced significant pressure to reduce its debt load, is sliding once again—this time because of a brand new competitor.

Indeed, the big news rocking the pharmaceutical world today is that Mylan MYL—another major drugmaker wrapped up in its own chaos over the past year or so—has received FDA approval to sell a generic version of Teva's multiple sclerosis drug Copaxone.

Mylan said that it wants to quickly introduce a slew of new generics to the market in an effort to curb rising drug costs. Today's approval will certainly help the company's top line, but it will also be the first step in this new plan—which should contribute to Mylan's ongoing efforts to regain public trust after being embroiled in its EpiPen price hike scandal.

Shares of Mylan opened about 15% higher and touched a nearly two-month high of $38.14. Teva, on the other hand, plummeted to $16.33 per share and is now down more than 54% on the year.

Mylan had missed out on approval of a Copaxone generic twice this year, and company management was recently forced to lower its earnings forecast due to a delay in launching key drugs. In a note this morning, Wells Fargo analysts said the new generic should add 13 cents per share to Mylan's quarterly earnings, so long as the FDA grants the company a 180-day exclusivity period.

For Teva, this new competition could have serious consequences, as Copaxone generated more than $1 billion in sales in the second quarter alone.

"The ongoing challenges to its generics business and that with FDA approval of Mylan's generic of Copaxone, earnings/cash flow are likely to affected," Jefferies analyst David Steinberg wrote in a note. "[Although Copaxone] has been a strong contributor to cash flow over the last two decades, growing generic competition to this franchise has been an overhang on TEVA shares in recent years."

Fresh generic competition from Mylan only adds to Teva's growing list of problems. Over the past few months, the Israeli firm has been desperately scrambling to ramp up assets in an effort to preserve its credit rating and cut its mounting debt.

After completing its deal to buy Allergan's AGN generics division last year, Teva's debt pile swelled to a whopping $35 billion. In August, on the same day that the company reported lackluster Q2 earnings, slashed its full-year outlook, and cut its dividend by 75%, Teva CEO Yitzhak Peterburg said that asset sales will likely generate at least $2 billion, well above that $1 billion level that was previously forecasted.

For now, Teva remains a Zacks Rank #3 (Hold). However, the company will need to improve performance in its own generics unit and pare down its debt quickly if it wants to lift share prices anytime soon.

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Allergan PLC. (NYSE: AGN): Free Stock Analysis Report
 
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