Teva forecasts worse-than-expected ‘trough year’ as generics hammer MS drug Copaxone

Shares of Teva fell nearly 12% in pre-market trading to $16.80 after the company’s executives conceded during the fourth-quarter earnings report that 2019 would be an even tougher year than analysts had been expecting. The problem? The company’s blockbuster multiple sclerosis drug Copaxone is losing ground to generic competition—and the company's newer drugs aren’t taking off fast enough to make up for the loss.

The company forecast 2019 revenues between $17 billion and $17.4 billion, missing consensus forecasts of more than $18 billion. And it’s expecting non-GAAP earnings per share of $2.20 to $2.50 versus the consensus estimate of $2.77.

CEO Kåre Schultz had previously forecast 2019 as a "trough year," but the estimates seemed draconian to some analysts participating in the conference call after the earnings announcement, particularly because they came amid a not-bad fourth-quarter report (PDF). Quarterly revenues of $4.6 billion came in slightly above estimates, and EPS of 53 cents came in 2 cents short of expectations.

In short, Schultz said during the call, "The drag on revenue … is from continued reduction in Copaxone sales." The product brought in $1.76 billion in sales in 2018, plummeting 44% from 2017.

Teva’s executives have long insisted that the company will return to growth in 2020 on the strength of its new products, particularly Ajovy, its CGRP inhibitor to treat migraines. The company estimates sales of the product will grow to $150 million this year, from $3 million last year.

But that’s a tall order, considering Ajovy is facing competition from Amgen and Eli Lilly in the CGRP market. And so far, payers seem to be siding with Teva’s rivals. Just last week, UnitedHealthcare’s OptumRx put Amgen’s Aimovig and Lilly’s Emgality on its preferred coverage list. It was the second OptumRx formulary to exclude Teva's drug. Patients will still be able to get Ajovy—they’ll just have to pay more for it, which could prove to be an obstacle for Teva.

Schultz pointed out during the conference call that Ajovy could get a boost from the European launch of the product this year. The company is expecting EU approval within two months, he said, followed by a market-by-market rollout, starting most likely with Germany and the Scandinavian countries.

Still, the payer environment in Europe could prove just as challenging as it has been in the U.S. One analyst pointed out during Teva’s call that England’s drug-price watchdog, the National Institute for Health and Care Excellence, has already demonstrated pushback against CGRP drugs. In January, it issued draft guidance saying Aimovig, which is marketed in Europe by Novartis, isn’t cost effective.

Schultz said he’s well aware of the challenge. In some countries "it might take negotiations for one to two years" before Ajovy can be launched, he said. "The unmet need in Europe is huge, but however you see it, it’s a slow ramp-up due to the fact that you have these prolonged negotiations."

As it pours resources into its new product launches, Teva is also continuing a restructuring effort aimed at shaving $3 billion in costs. The company said a year ago it would ultimately close 40 manufacturing sites. During the fourth-quarter report, it announced that 11 of those factories would either be shuttered or divested in 2019.

But Schultz tried to keep the spotlight on the potential for long-term growth. In addition to a worldwide expansion of the Ajovy market, he said, he has high hopes for Teva’s "broad pipeline of biosimilars," as well as its partnership with Regeneron to develop a nonopioid pain therapy. That drug has run up against safety questions, but if it "turns out to come out with good safety data and gets approved, then that’s an exciting possibility to put people on a non-addictive pain therapy," Schultz said.

"So there are a lot of exciting things happening," Schultz said. But investors seemed reluctant to share his enthusiasm.

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