Oops Teva did it again

Since Teva has already thrown in the kitchen sink, today it added the bathtub. Disappointing 2018 guidance combined with the threat of delay for its biggest pipeline project led to yet another share price plunge, ending a short-lived rally that began when executives announced a restructuring plan in December.

A lower than expected earnings outlook for 2018 alone might have been passed off by the sellside as an attempt to lowball expectations. But when combined with the news of a US FDA warning letter regarding the plant where fremanezumab is to be manufactured, it made for another ugly quarterly report. The new executive team led by Kåre Schultz will be judged both for its ability to cut costs and to launch new products, and the latter at least is in doubt.

Teva’s US-listed shares fell 10% in early trading today following its fourth-quarter earnings report, in which executives guided investors to expect $18.3-18.8bn of revenue, and earnings per share of $2.25-$2.50 in 2018, compared with consensus of $19.2bn and $2.93 respectively.

Horizon scanning

Teva was at least able to announce the somewhat positive news that Copaxone sales had beaten fourth-quarter consensus forecasts. With Copaxone now subject to competition at all doses, and the price pressure on generic drugs unlikely to abate, investors are looking for cost controls and sales growth from new branded products to generate profits.

Those new products are the Huntington’s disease drug Austedo and the migraine candidate fremanezumab, which combined are expected to sell $1.1bn in 2022, according to EvaluatePharma’s consensus of sellside analysts. This will not come close to replacing the loss of $3.6bn in annual revenue generated by Copaxone between 2016 and 2022 (Teva investors applaud and staff revolt, as Schultz swings the axe, December 14, 2017).

So the disclosure that the Celltrion plant in South Korea where fremanezumab is to be manufactured has fallen foul of an FDA warning letter has come at a bad time. The warning, and the subsequent finding by the FDA that Celltrion’s initial response was inadequate, means that it could be months before production is back on track.

Fremanezumab has a June 15 action date with the FDA, but based on the regulator’s suggestion that the Celltrion facility bring in outside consultants and conduct an independent risk assessment, Bernstein analyst Ronny Gal estimates a nine-month delay.

Path forward?

On a call with analysts today, Mr Schultz said the GMP problems were in the fill-and-finish portion of a large manufacturing plant where fremanezumab’s active pharmaceutical ingredient is made. Teva therefore plans to ask the FDA whether compliance on the API side is sufficient for timely approval of fremanezumab.

Mr Gal points out that with migraine competitors in the form of Amgen and Novartis’s Aimovig and Lilly’s galcanezumab also filed with the FDA, the risk is that Teva’s entry will miss the first payer contracting season and effectively be shut out until 2020 at the earliest. Aimovig is due an FDA decision on May 17 and galcanezumab on October 11.

With about $1bn in cash and a heavy debt load to lighten, Teva does not look to be in a position to buy any more growth through company acquisitions. Austedo and fremanezumab are the chips it has to play, and it needs both to fulfil their promise.

To contact the writer of this story email Jonathan Gardner in Virginia at [email protected] or follow @ByJonGardner on Twitter