Challenges for Teva
In December 2017, Teva Pharmaceutical Industries (TEVA) announced a restructuring plan to recuperate sales. Its stock has had a bull run since the announcement, rising 44.5% since the company’s weak earnings results for fiscal 3Q17 on November 2, 2017. The company has been under immense pressure in the past year, triggered by a number of systematic as well as unsystematic risks.
Investors seeking diversified risk exposure to Teva Pharmaceutical can consider investing in the iShares MSCI ACWI (ACWI), which holds ~0.04% of its total portfolio in TEVA stock.
Teva has huge debt of $32 billion
Teva Pharmaceutical undertook a massive acquisition of Allergan’s generics business, Actavis, for a whopping $34 billion. The deal was undertaken on the rationale of a stronger and bigger pharmaceutical company in a challenging US generics market. However, the company’s financials deteriorated after the acquisition. With its current restructuring plan, the company is now focused on reducing the debt on its balance sheet and has suspended further dividend payments and investments in acquisitions.
US generic market seeing intense competition
The generic drugs market in the United States is witnessing intense competition since the FDA (U.S. Food & Drug Administration) is approving generic drug launches at a faster pace, which is boosting competition. The intensified competition is leading to price erosion. The consolidation of the healthcare industry in recent years has also led to more competitive drug prices in the US pharmaceuticals market. Large pharmaceutical giants, including Mylan (MYL), Novartis (NVS), and Pfizer (PFE), have reported price erosion as one of the key factors pulling down sales in recent quarters.
Generic version of Copaxone launched
Teva’s Copaxone sales contribute approximately 25% to its overall sales. With the recent launch of Mylan’s generic version of Copaxone, Teva expects a significant impact on its leading multiple sclerosis drug.
Teva’s US generic product launches slow down
In fiscal 3Q17, Teva Pharmaceutical witnessed a lower-than-expected contribution from new product launches and made a downward revision to its fiscal 2017 sales contribution from new product launches during the earnings release. The company now expects to generate ~$400 million in sales from new product launches compared to the previous estimate of ~$500 million.