Analysts: Teva lacks strong growth engines

Teva Photo: Reuters Ammar Awad

Leader Capital Markets and IBI do not see the Israeli pharmaceutical company resuming growth for several years.

Teva Pharmaceutical Industries Ltd.'s (NYSE: TEVA; TASE: TEVA) share price tumbled 8% to $17.60 on Wall Street on Wednesday after the company published its results for the fourth quarter of 2018 and issued its guidance for 2019. The market attributed most of the drop in the share price to company's guidance for 2019, which was lower than predicted by the analysts covering Teva. Since then the share price has recovered somewhat, raising 4% on Friday.

Teva has no strong and substantial growth engines at present, and its revenue has therefore been sliding. The company ended 2018 with $18.9 billion in revenue, 16% less than in 2017, and the guidance provided by Teva's management lists $17-17.4 billion in revenue in 2019, a further 8-10% fall.

The analysts' forecasts were in a fairly wide $16.8-18.6 billion range, with a $17.9 billion average forecast. In its conference call, Teva tried to explain the wide variation in the market's predictions, stating that it probably resulted from a number of factors, such as a more aggressive assumption about the pace of its streamlining, expectations of higher sales of Copaxone, lower forecasts for the drop in sales of inhalers and cancer drugs, and external effects, such as depreciation of currencies against the dollar and the negative impact of reports in Japan.

Teva's results, more challenges, few growth engines

Leader Capital Markets Ltd. (TASE:LDRC) pharma analyst Sabina Levy wrote, "Teva's mediocre guidance for 2019 highlights the many challenges facing the company, including multiple threats of competition in the US market, a low generics price environment and pressure in its international business (outside North America and Europe, O.C.). The company's leverage, which is still high, constitutes a major obstacle to its business development and the creation of new growth engines in the near future."

Levy added that the main focus concerning Teva is still the erosion in sales of Copaxone, rather than Teva's efforts to penetrate the market with its new drugs: Ajovy for treatment of migraine headaches and Austedo for treatment of movement disorders. "The combination of multiple challenges and the absence of new growth engines reduces our confidence in long-term forecasts and increases the company's risk," she writes.

Sales of Copaxone in the US fell 44% to $1.7 billion, following stronger competition from generic versions of the drug and the accompanying drop in prices. Worldwide Copaxone sales totaled $2.4 billion, and Teva believes that competition from generic versions will reduce Copaxone sales by 37% to $1.5 billion in 2019.

At the same time, Teva's sales of inhalers are falling sharply. Sales of QVAR in the US were down 42% to $182 million in 2018, with fourth quarter sales totaling a mere $9 million. Competition from generic versions cut sales of ProAir in the US 21% to $397 million, and the company expects this competition to further detract from sales in 2019.

The downtrend in Teva's generics business continued in 2018, with revenue falling 22% to $4.1 billion, despite the company's huge $38 billion investment in this business three years ago through the unsuccessful acquisition of Actavis. In its guidance, Teva assumes further decline in 2019 as a result of pressure on prices and a decrease in quantitative sales, although the launching of new drugs could keep this erosion to a minimum.

Growth in Teva's two new innovative branded drugs cannot make up for the fall in sales of its other products. According to Teva's guidance, sales of Austedo, which totaled $204 million in 2018, will grow to $350 million in 2018.

Advantage to Teva with Ajovy product

IBI pharma and medical analyst Steven Tepper writes that sales of Austedo come from Huntington's Disease patients and patients suffering from late-stage dyskinesia (which require more market education). "This figure reinforces our assessments that this product has over $1 billion in sales potential within a few years. The company disclosed that it was considering penetration of other geographic areas with its product," Tepper wrote to investors.

Tepper noted that Teva was satisfied with the pace of growth in prescriptions for its Ajovy drug, for which US Food and Drug Administration (FDA) approval was obtained in September. Over 10% of the prescriptions are for quarterly injections. "Teva's market share is 30%. Similar injectable products marketed by Teva's three competitors require monthly injection; Teva product is the only one that can be injected quarterly. Unlike Amgen's product, Ajovy does not cause digestive problems.

"The company expressed confidence about insurance reimbursement for Ajovy, with expectation of an increase in the commercial insurance reimbursement proportion from the current 60%. Although the company's guidance includes only $150 million in revenue in 2019 (compared with $3 million in 2018, O.C.), we predict that sales will reach $250 million, because some of the patients still have no insurance coverage, and will in effect receive the drug for free. Approval of the drug is also expected in Europe in the coming months, but the process of launching it will take time, and depends on the pace at which the drug is added to baskets of drugs for which reimbursement is provided at the national level," Tepper added.

Tepper notes that Teva believes that its business will level off in 2020, with growth in its new products offsetting losses caused by competition from other companies' generic versions of Teva's old products. The company's guidance says that growth will be resumed in 2021, when the decrease in Copaxone sales will be negligible. "In the medium-to-long term, Teva has three major growth engines from special drugs: Ajovy, Austedo, and biosimilar versions of oncology drugs, such as Rituxan and Herceptin. The main effect of these drugs will begin in 2020-2021, following the initial penetration stage, when sales of Ajovy grow, the loss in Copaxone sales drops off and that drug becoming less crucial for Teva, the company selectively expands it biosimilar business, Teva's streamlining program is completed, and it focuses on its generics product portfolio, combined with stabilization in the US generics market," Tepper writes.

Published by Globes, Israel business news - en.globes.co.il - on February 17, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Teva Photo: Reuters Ammar Awad
Teva Photo: Reuters Ammar Awad
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