Teva braces for a $550M hit from Copaxone generics

Generic competition for its top-selling Copaxone drug will hit Teva Pharmaceutical Industries ($TEVA) hard. Now, we know just how hard--at least according to Teva itself. The company expects sales and operating profits to come in $550 million lighter next year if copies of the multiple sclerosis treatment make it to market.

Net sales would amount to $19.8 billion to $20.8 billion in 2014, provided Copaxone keeps its exclusive lock on that market. If generics make their debut as soon as Copaxone's patent expires in May, then Teva expects sales of $19.3 billion to $20.3 billion.

Profits-wise, it's a similar story. Because Copaxone is such a high-margin product for Teva, increase--or decreases--in sales drop straight to the bottom line. So, Teva's looking for operating profits of $5.35 billion to $5.65 billion if Copaxone escapes competition--and $4.8 billion to $5.1 billion if it doesn't.

That's hefty. But it's not as hefty as the rumor mill predicted. The problem is that Teva's forecast also rests on some rosy projections for the company's other products. "They're making a lot of very optimistic assumptions regarding the non-Copaxone business," Gilad Alper, an analyst with Excellence Nessuah Investment House, told Bloomberg.

Of course, the Copaxone trouble wasn't supposed to come next year. Till July, Teva thought it had exclusive rights to sell Copaxone until November 2015. But a U.S. Court of Appeals invalidated a key 2015 patent, and instantly, the D-Day for generic competition jumped 18 months closer.

Already working to restructure and refocus in anticipation of Copaxone's patent expiration, Teva accelerated cost cuts and added 5,000 more jobs to its planned layoff toll. And in the aftermath, CEO Jeremy Levin, who had joined the company less than 18 months before, stepped down amid conflict with the board of directors.

Levin's interim replacement, Eyal Desheh, said in a statement that 2014 "will be a pivotal year for Teva and a year of major transitions" at the company, based in Petach Tikva, Israel. The cost cuts are rolling on, and the company is betting on new formulations of existing drugs and emerging-markets growth to help it make up patent-cliff losses.

Generics maker Mylan ($MYL) has said it will be ready to roll with copycat Copaxone as soon as the 2014 patent expires. Teva hopes to stave off generics by persuading the FDA to require additional clinical studies for approval. And no wonder; Teva figures it could add $78 million in sales for every month that Copaxone keeps its exclusivity.

There are other uncertainties, too, and not all of them favorable to Teva. As Alper told Bloomberg, Teva's ability to hold onto Copaxone sales depends upon how many generic versions hit the market. Teva's assumptions are based on two copycat rivals, so more competition could mean steeper sales declines. "We have to sit and wait and see if we have generic Copaxone and how many companies launch," Alper says. "It makes a big difference if there's one or two or three."

- get the Teva release
- read the Bloomberg story

Special Reports: Top 10 Generics Makers by 2012 Revenue - Teva | Top 10 Drug Patent Losses of 2014 - Copaxone

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