Teva faces unexpected delay for its migraine drug candidate even as generics pressures worsen

Teva reported 2018 guidance that came in well short of analyst expectations and said that approval of a new med might get delayed because of a warning letter for the Celltrion plant that makes the API.

Teva just went through a horrible year, today reporting a $17.5 billion operating loss in 2017, but executives said things will get worse before they get better for its generics business, even as it faces a potential delay for its new migraine medication.

The Israel-based company, whose new CEO Kåre Schultz is pressing the company through a $3 billion cost-cutting–laying off 25% of its workforce and slashing manufacturing and R&D sites worldwide–disappointed markets further with 2018 guidance that was way below what analysts had forecast.

As David Maris at Wells Fargo told clients in a note, Teva provided 2018 revenue guidance of $18.3 billion to $18.8 billion compared to consensus of $19.24 billion; its EBITDA guidance of $4.7 billion to $5 billion compared to consensus of $5.25 billion and non-GAAP EPS guidance of $2.25 to $2.5 versus consensus of approximately $2.93 a share.

Teva shares were trading down more than 9% on the news midmorning.

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Schultz blamed the reduced outlook for this year on expectations that a second generic of its top-selling MS drug Copaxone will hit the market in April and U.S. generics sales of about $4 billion in 2018, off another 20% from this year. He said the company will no longer project price erosion going forward but said that in the fourth quarter of 2017, prices fell 13% and Teva took a $17.1 billion goodwill impairment, mostly on the value of its generics business.

The CEO told analysts he does expect the company’s fortunes to begin turning in 2019 as Copaxone sales bottom out and the company benefits from new specialty products, but even that has a cloud hanging over it.

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The Celltrion plant that makes the API for Teva's anticipated new migraine headache injection, fremanezumab, received an FDA warning letter last month. The plant also makes the APIs for the biosimilar candidates for Rituxan and Herceptin, which the company hopes will so juice up its future revenues.

Schultz pointed out that the warning letter was for issues the FDA has with the finished products portion of the plant, the areas where fill-finish is done, and not the production area where the fremanezumab API is manufactured. He said Teva is in talks with the FDA about how that might affect its drug candidate, but the company acknowledged it could delay approval.

“It could take six to 18 months to resolve a warning letter but we are having API made there and that is not affected by the warning letter, so an approval could be sooner, but we don’t know,” Shultz said on the call with analysts.

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Teva’s drug is in line at the FDA behind submissions from Novartis and Amgen—which filed an FDA application for their erenumab over the summer—as well as Eli Lilly, which submitted its own application weeks ahead of Teva.  

Analysts have big expectations for Teva’s migraine med, however, because it has a dosing advantage needing to be injected just every three months.

One positive from the company is that Teva will get a little help in its cash flow next year from, Schultz said, from a $700 million payment that it will get from Allergan as an adjustment to the $40.5 billion buyout of Allergan’s generic business. Teva will use that money to repay some of the debt on the disastrous deal.