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Forecast: A High Chance Of Copaxone Generics

Jan. 30, 2014 11:49 AM ETTEVA
Eric Chiu profile picture
Eric Chiu's Blog
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Biotech, Healthcare

Seeking Alpha Analyst Since 2013

My name is Eric Chiu, a recent graduate from Western University (UWO) and CFA level 2 Candidate. I am particularly interested in the healthcare sector and within it, the research and development of pharmaceuticals. From the community at Seeking Alpha, I hope to generate thoughtful discussion and ideas in the analysis of small and large cap healthcare / pharmaceutical companies.

Teva is a company that has a strong focus on complex generics with a few specialty drugs offered around the world. The share price has been on a consistent rise until April of 2010 where share prices began to decline due to Copaxone competition. Approximately 20% of their sales originate from Copaxone, a patented drug that treats multiple sclerosis that will see expiry in May 2014. FDA recently approved patent protection until 2030 for a higher dosage of the same drug which equates to a patient injecting once every two days.

I believe that the estimate of a generic form of Copaxone being released in June 2014 is accurate, if not within the next year. Copaxone is a 6.4kD random polymer composed of four amino acids which is not as complicated as claimed. Manufacturing a random amino acid polymer synthetically can be done with a high degree of reproducibility because the most critical component of the structure is the molecular weight. This can be controlled by a consitent monomer to initiator ratio1. As a result of this, I do feel that a generic form will be available by June 2014 and at latest within the year.

In order to combat this, Teva is trying to gather as many patients as possible on the Copaxone regiment. Doctors and patients are both reluctant to switch prescriptions as a specific medication continues to work. However, a major factor to consider is the willingness of insurance companies to cover the cost of Copaxone when there is a generic form available, especially because it is a perpetual treatment. Teva will be left to do one of two things: price Copaxone higher to capture the MS market that would only like to inject the drug once per two days, or price the drug competitively with the generics. Either way, Teva will not be seeing sales that they are accustomed to.

Guidance released by Teva in the events of generics being released claimed to cut revenues from Copaxone by $500 million and earnings by 60 cents. This is a precautionary number as revenues from this product will significantly drop in forth coming years.

I do believe that this stock is overvalued as a result of the FDA approval of higher Copaxone dosage. However, because of Teva's strong focus on generics drug development, there is plenty room for steady growth after the stock declines to a price floor of $40.

1 www.chemistry.org.il/booklet/1/pdf/copaxon.pdf

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