Was last week's Teva sell-off warranted? Depends who you ask

Last week, investors concerned about generics trends and migraine competition cratered Teva’s shares. But did they need to worry? Analysts disagree.

As Bernstein analyst Ronny Gal pointed out in an investor video early in the week, when it comes to generics, Teva “has ceded 17% volume in this quarter alone, and the quarter is not over yet.” He pointed to success from India-based copycats such as Lupin, which has eclipsed Mylan to take second place in terms of volume behind Teva.

As a result, though, he expects to see Teva revise its $4 billion 2018 sales expectations downward, he said, and he’s not the only one. Morgan Stanley analysts also recently lowered their Teva estimates for the rest of the year, Bloomberg notes.

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An FDA approval for Eli Lilly CGRP migraine drug Emgality—which followed closely on a green light for Teva’s own closely watched CGRP contender, Ajovy—spooked investors, too. Both drugs will go up against Amgen and Novartis’ recently launched Aimovig, and analysts including Wells Fargo’s David Maris figure the fierce competition will trigger major discounting.

“On the one hand, Teva has shown a strong marketing ability in CNS, with the success of Copaxone and more recently, Austedo's launch. On the other hand, this is a competitive market with similar drugs where the competitors are marketing powerhouses Amgen/Novartis and Lilly, and Teva is undergoing a lot of organizational change,” he wrote to clients last week.

Leerink Partners’ Ami Fadia, on the other hand, saw last week as occasion to upgrade Teva from underperform to market perform, citing company fundamentals that have “improved meaningfully over the last few months.” The way Fadia sees it, the “outlook on U.S. generics” is “improving slightly,” and 2019 will bring an “improvement in the overall pricing trends and potential contribution from new product launches.”

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Goldman Sachs’ Jami Rubin was “puzzled” by the sell-off, too, especially because “2H18 headwinds” and Lilly’s Emgality approval “were already expected and well understood.”

She dubbed the recent decline “a buying opportunity” in her own research note, citing Teva’s “near-perfect execution since Kåre Schultz became CEO in late 2017.”