Mylan (MYL) finally received approval for a generic version Teva’s (TEVA) Copaxone. The news broke Tuesday after-hours. Wednesday TEVA fell 14% and MYL was up 16%:
Mylan NV’s long-awaited U.S. approval for its generic version of rival Teva’s blockbuster multiple sclerosis treatment (“MS”) Copaxone drove the drugmaker’s shares up more than 19 percent on Wednesday morning and hurt Teva shares.
The approval late on Tuesday by the U.S. Food and Drug Administration came earlier than both companies had expected. It was issued a day after the health regulator said it would introduce a slew of measures to speed to market generic versions of complex drugs like Copaxone in an effort to address the rising cost of pharmaceuticals.
How will generic Copaxone impact Teva’s earnings and outlook? I explain below.
Is A 70% Loss In Copaxone Sales In The Cards?
Quantifying the potential impact of the Copaxone fallout starts with projecting the revenue loss. In Q2 Teva’s MS Specialty segment (mostly Copaxone sales) generated $1.0 billion in revenue or 18% of the company’s total revenue. The entry of generic Copaxone could punish Teva in the form of [i] price reductions for Copaxone and [ii] a decline in volume due to lost market share. According to the IMS Institute For Healthcare Informatics, from 2002 to 2014 the price of medicines was reduced by 51% in the first year generics entered the market:
Generics that entered the market between 2002 and 2014 reduced the price of medicines by 51% in the first year and 57% in the second year following loss of exclusivity. Prices of oral medicines were reduced further, by 66% in the first year and 74% in the second year after generic entry. Within five years, prices of generic oral medicines fell to 80% from their pre- expiry brand prices.
That could imply Copaxone revenue could fall by 51% just on price reductions alone. Wells Fargo analyst David Maris received approval Mylan discounts Teva’s pricing by 40% in the 40 mg dosage market, and captures 40% market share. A 51% decline in price and a 40% decline in volume would equate to a revenue decline of approximately 70%.