October 4, 2017, one year ago to the day, was a tough day for investors in Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA). On the preceding day, following the conclusion of trading on Wall Street, Teva's competitor, Mylan NV., unexpectedly announced that it had obtained marketing approval in the US for a generic version of Copaxone, Teva's flagship drug for treatment of multiple sclerosis. The threat of a generic version, which had been palpable for a long time, materialized overnight. Teva's share price fell 15% on the New York Stock Exchange the next day, while Mylan's share price jumped 16%, pushing its market cap above that of Teva and making it the world's leading generics company.
What has happened in the year since then? Both companies have seen quite a few changes, especially Teva. Since that black day for Teva, Kare Schultz became the company's CEO (his appointment was already known when Mylan made its announcement, but he had not yet officially assumed his position). Shortly afterwards, Schultz launched an aggressive streamlining program, including painful layoffs of thousands of employees worldwide. The program has since made great progress, with Teva reducing its debt by $4.9 billion to $30.2 billion in the year ending in June 2018. More recent positive news from Teva came with the launching of its Ajovy branded drug for treatment of migraine, which is meant to compensate at least partially for the waning contribution of Copaxone, and the launching of an exclusive generic version of Mylan's flagship EpiPen product for treatment of life-threatening allergies - a sort of delayed "revenge" for Mylan's attack on Copaxone.
All of these developments have raised Teva's share price from $16 a year ago (it subsequently fell to as low as $11) to $21.60 at present, a 35% increase. Mylan's share price, which soared to $37.80 a year ago, is now slightly lower at $36.60, after having been as high as $47.60 during the past year. The result is that Mylan's market cap is now $4.5 billion lower than Teva's current $23.4 billion market cap. Both of these figures are far below their respective peaks. In 2015, Teva attempted a hostile takeover of Mylan when the latter's market cap was over $40 billion (an $82 share price), while Teva's own market cap was over $60 billion.
The worst scenario did not materialize
Copaxone, first launched in 1996, became a blockbuster - a drug with annual sales of over $1 billion. At its peak in 2013, its sales totaled $4.3 billion (more than 20% of Teva's total revenue). Its contribution to Teva's profits was even more significant. In recent years, the company published its profits from the multiple sclerosis sector (Copaxone). In every year in 2013-2017, the reported profit was over $3 billion (Teva recently changed its reporting method and began listing its results geographically, rather than divided between generics and original drug activity).
In the first half of 2018, revenue from Copaxone in North America totaled $940,000, $910,000 of which was in the US, where there is generic competition. This is 43% less than in the corresponding period in 2017. Global Copaxone sales in the first half of 2018 totaled $1.27 billion, 36% less than in the corresponding period in 2017. The worst scenarios taken into account by investors and analysts when generic Copaxone was launched did not materialize. The introduction of generic Copaxone was probably accompanied by a drop in Teva's sales and prices for Copaxone, but one year later, it appears that Teva has maintained a fairly respectable market share, even against generic competition. Goldman Sachs said several months ago that Copaxone was still resilient, despite the generic competition, and in a review several days ago the bank's economists wrote that Teva's defense of its drug's market share was better than expected.
Figures published by Credit Suisse, based on data from research company IQVIA (formerly IMS) show that as of September, the market shares in the general category of Copaxone (which constitutes 30% of the existing treatments for multiple sclerosis) were as follows: the two existing dosages of Glatopa, Momenta Pharmaceuticals' generic version of Copaxone, accounted for 6% of the prescriptions. Mylan's generic version of Copaxone had a 16% market share, while Teva's market share was 77%: 11% in the original 20-milligram dosage and 66% in the 40-milligram dosage. The figures indicate that the market share of Mylan's generic version of Copaxone has risen steadily since it was launched, but not to an extent that jeopardizes Teva's market share, at least as of now.
These results led Mylan to unexpectedly change its strategy three months ago by slashing the price of its generic Copaxone by 62% - from $5,000 to $1,900, compared with a $5,800 price for Teva's original Copaxone. In a review published since then by Bernstein analyst Dr. Ronny Gal, he expressed astonishment at this measure, noting that industry players had also failed to see much logic in it. He assessed at the time that Mylan had failed to obtain a larger market share because of concern on the part of insurers about the availability of support for patients using generic Copaxone and the tendency of patients and doctors to prefer the original drug to the generic version.
Over the years, before the introduction of generic competition, Teva steadily raised the price of Copaxone. US Congressmen Elijah Cummings (Democrat, Maryland) and Peter Welch (Democrat, Vermont) published figures in August 2017 purporting to show that the price of Copaxone had risen by 1002% since it was launched in the US in 1996, and that the price of 40-milligram Copaxone had risen by 26% since it was launched in 2014. Their figures showed that the annual price of 20-milligram Copaxone was $91,000 and the annual price of 40-milligram Copaxone was $80,000. As expected, generic competition lowered prices. Following Mylan's price cuts last July, Teva predicted further downward price pressure in the second half of the year.
Upon the publication of his company's first half results in early August, Schultz said that Mylan's price cut would have a marginal effect on both sales volume and pricing. In a conference call, Schultz commented that Teva expected continued pressure on quarterly revenue from Copaxone in the US. The second half of 2018 will be weaker as far as Copaxone's contribution to the company's results. At the same time, Teva recently upwardly revised its guidance for its annual revenue from Copaxone from $1.8 billion to $2.1 billion, based on its better-than-expected results in the first half of the year.
Published by Globes [online], Israel business news - en.globes.co.il - on October 4, 2018
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