How bad is the generics market in the U.S. these days? Reports from some players are that it continues to be tough, but the picture will get a lot clearer when generics leader Teva reports Thursday, followed by Mylan next week. Indications are the short sellers are tuned in.
Novartis provided an inkling of how competitive the U.S. generics remains when it reported last month that sales at its Sandoz generics unit were down 4%. Bernstein analyst Ronny Gal told investors in a note today that he has gotten some short seller calls about Mylan and Teva and “much of the short thesis” is based on Sandoz’ difficulties, as well as results from India’s Dr. Reddy’s, which last week talked about pricing in the U.S. being down 10% to 20% in the quarter.
“We can see those as short-term funding shorts, but nothing terrible,” writes Gal, who can’t see that short sellers, despite the tough U.S. generics market, have that much more downside for them to work with Teva and Mylan.
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So what does he presage for Teva shares in the short term for the drugmaker, which has been without a CEO for the last six months and has put some operations on the block to raise some quick cash? “We do not expect a terrible quarter from Teva,” Gal told clients. “That said, without permanent CEO, … it is tough to see Teva stock actually outperforming near-term.”
Bernstein is forecasting Teva EPS at $1.08 for the quarter.
Teva does have some good news to announce ahead of earnings, today saying that the FDA has agreed to review the biosimilar of Roche’s breast cancer blockbuster Herceptin that it has developed with partner Celltrion.
Bernstein analysts figure the picture may be tougher for Mylan. They have projected Mylan U.S generic sales at $1.16 billion for the quarter, well below consensus at $1.36 billion, and can’t see how the drugmaker can make the low end of its $5.15 EPS guidance for the year.
Still, Gal doesn’t see much room for short sellers to maneuver. He thinks Mylan’s shares are already undervalued and given that credibility of Mylan’s management is already very low in investors eyes, it is “tough to see what the bigger short thesis is,” he wrote.
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The credibility of Mylan management is so low that 83.5% of investors voted against the company’s executive pay packages for the year at the Mylan annual meeting in June and 56% voted against the re-election of director Wendy Cameron, who heads the board’s compensation committee.
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They were angered over the 2016 pay package of Chairman Robert Coury which totaled nearly $100 million, making him the highest-paid pharma exec for the year at a time when Mylan’s share price has faltered and the drugmaker has faced multiple controversies, investigations and new competition for its key EpiPen product. His bonus of $20 million beat most of Big Pharma’s CEO hauls all by itself and his stock awards—$50 million-plus—would top the list.