Hold On To Teva!

| About: Teva Pharmaceutical (TEVA)
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Summary

Copaxone’s sales are under serious threat as two of its generic versions made it to the market in September 2015.

Teva’s Pulmicort, which treats asthma, is also expected to face generic competition in the future.

Teva has successfully achieved FDA approval for the generic version of Pfizer’s Celebrex.

The company has also successfully developed and launched Novartis’s Exforge HCT.

The overall pharmaceutical industry is facing a threat from generics as many of their blockbuster drugs' patents expire. The competition from generics has been increasing following the demand for cheaper healthcare costs. Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) is not only facing pressure from its expiring top selling drugs' patents but the company is also facing price pressures due to increased generic competition.

Teva Cut Revenue Projection

Teva is expected to generate $20.3 billion in revenue this fiscal year with estimated per share earnings of $5.06. However, the company estimated a wide range of per share earnings for FY2015. As per the company's projections, next year's revenues should be somewhere between $19-19.4 billion with an expected EPS range of $5-5.30compared to the consensus estimates of $5.06 in per share earnings on revenues of $20.1 billion. The comparison between the company's and analysts' projections raises concerns especially on the revenue end because even the upper limit of the company's revenue estimate falls short of the analysts' estimates by approximately a billion dollars. Moreover, the company has given quite a wide range for its EPS projection, the lower limit of which falls short of the analysts' estimate as well.

Generic Competition is a Reality That Teva Can't Run From

The company has been struggling to keep generics from hurting its multiple sclerosis drug Copaxone's sales for a while now. Copaxone is one of the company's bestselling products which accounts for 20% of its top line and 50% of Teva's annual profits. However, the drug is due to face intense competition in the future as Novartis (NYSE:NVS) and Momenta Pharmaceuticals Inc. (NASDAQ:MNTA) develop the drug's generic version. Mylan Inc. (NASDAQ:MYL) and Natco Pharma Ltd. (NATP) are also struggling with the same. Therefore, it would be rather foolish to assume that Copaxone will continue to draw profits for the company despite the fact that it is no longer patent protected. The two generics are expected to be launched around September 2015, after which the company's operating income is estimated to fall by approximately $30 to $50 million per month.

In addition to Copaxone, Pulmicort, which treats asthma, is also expected to face generic competition. The generic version of Pulmicort is expected to shrink revenues by another $400-500 million while the operating income would fall by one hundred to two hundred million dollars per annum.

Teva Continues to Fight Back

With all of these facts and numbers combined, it is no wonder the company cut its revenue forecast. Although the company is likely to face extensive competition, Teva is also launching strong generic medicines which might offset the upcoming weakness in its patent protected medicines. Note that the company is a leading generic producer with almost half of its sales attributed to its generic segment.

Going forward, the company is struggling to shift most of its patients to the thrice a week version of Copaxone that will be protected by patent up until 2030. Since Copaxone has benefitted patients significantly over the years, it is likely that the patient shift will not be much of an issue. In addition, the company has successfully received FDA approval for the generic version of Pfizer's Celebrex. Considering that it is the first generic version of the drug, its success is highly likely to become a reality. In the US alone, Celebrex has reported annual sales worth $2.56 billion as per the latest figures (according to IMS).

The company has also successfully developed and launched Novartis's Exforge HCT which is targeted to lower blood pressure and treat hypertension. As per the latest figures released by IMS, the tablets yield $158 million in annual sales.

Concluding Remarks

We have yet to see where the company ends up in relation to how the market reacts to the generic versions of the company's bestseller Copaxone, Pfizer's Celebrex, and Novartis's Exforge. The company looks good for now as it still generates good value for shareholders. Teva's dividend yield is 1.92%, compared to the industry average of 1.40%. In addition, the company plans to invest $1-1.2 billion in share repurchases in the next fiscal year. Although the blow from Copaxone's generics is expected to be significant, part of that blow is expected to be offset by Celebrex and Exforge's generics.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.