Contrarian Value Ideas

[gfp927z]

>>> The generic drug bloodbath continues for a second day, with Teva leading the way


By Emma Court

Aug 5, 2017



http://www.marketwatch.com/story/teva-shares-plummet-18-on-cheaper-generic-drug-prices-pull-rivals-lower-2017-08-03?siteid=bigcharts&dist=bigcharts



Price erosion, decreased volume and more FDA generics approvals hurt Teva’s generics business

Teva, the world's largest generic drug maker, missed profit expectations

Lower prices for generic drugs, though a boon for consumers, have been challenging drugmakers and other companies in the pharmaceutical supply chain—a trend that isn’t expected to go away soon.

Generic drugmaker Teva Pharmaceutical Industries Ltd. was the latest casualty this earnings season, reporting generics revenue that was below expectations on Thursday. The NYSE-listed stock TEVA, -13.26% plummeted 17.8% on Thursday and extended its losses on Friday, dropping 9.6% in heavy morning trade.

Shares of Teva rivals also fell on Thursday and continued to fall Friday, including Mylan MYL, -5.13% , Perrigo Co. PRGO, -1.29% , Celltrion 068270, -0.10% , Taisho Pharmaceutical Holdings 4581, -1.23% , Teligent Inc. TLGT, +0.57% and Dr. Reddy’s Laboratories Ltd. 500124, -3.78% . The VanEck Vectors Generic Drugs ETF GNRX, -0.40% dropped 4.1% in Thursday trade.

Teva cited accelerated price erosion, decreased volume and more Food and Drug Administration generics approvals as among the factors that hurt its generics business performance.

See: Teva’s stock plunges on heavy volume after profit miss and slashed outlook

The company, which issued downbeat 2017 guidance early this year and warned of headwinds, cut its adjusted earnings-per-share outlook to $4.30 to $4.50 from $4.90 to $5.30 on Thursday.

Shares of drug distributors, which are also affected by poor generic price trends, also dropped on Thursday.

AmerisourceBergen Corp. ABC, -1.08% stock plummeted 10.5% in Thursday trade and extended its losses on Friday morning, dropping 1.5%. The company, which reported a third-quarter profit beat and revenue miss early Thursday, said that generic deflation is a big headwind, has not yet eased from high single digits and that the trend may continue into fiscal 2018.

The prediction appeared more negative than one made by Cardinal Health on Wednesday. The rival drug distributor said that it expects price deflation to continue through 2017, though to a less extreme extent than in the first half of the year.

Cardinal Health CAH, -0.32% stock fell 2.3% on Thursday, but was down just 0.5% on Friday. McKesson Corporation MCK, -0.42% stock fell 2.7% on Thursday but was up 0.2% on Friday.

Cardinal Health also issued downbeat fiscal 2018 EPS guidance on Wednesday, and has previously said 2018 outlook would reflect generic deflation.

Generic drugs, with their lower prices, also tend to have thinner margins for pharmaceutical companies that are more easily affected by competition. Over time, their prices tend to go down, though the industry has also been criticized for large price increases on certain products.

Read: Why did these generic drugs’ prices jump as much as 85%?

After several drug pricing scandals in recent years, the FDA announced in late June that it plans to promote drug competition, including expedited review for generic drug applications.

Teva shares have dropped 32.1% over the last three months. The VanEck Vectors Generic Drugs ETF has declined 3.1% over the last three months, compared with a 3.5% rise in the S&P 500 SPX, +0.19%

<<<