Why Wyeth Shares May Be at Risk
Wyeth (WYE: NYSE)
By Bear Stearns ($45.02, Nov. 12, 2007)
[AFTER ASSESSING WYETH'S 10-Q], we are downgrading shares to Peer Perform from Outperform.
The generic Effexor XR [an anti-depressant] risk is rising. The new 10-Q language states that "based on existing Food and Drug Administration practice, Sun Pharmaceuticals' [of India] abbreviated new drug application (ANDA) for a tablet product could be approved without regard to Teva Pharmaceutical Industries' 180-day generic exclusivity as the first company to file an ANDA challenging these patents for a capsule product."
The FDA could approve Sun's non-AB-rated tablet as early as the expiration of the basic patent + pediatric exclusivity in June 2008. Wyeth sued Osmotica over its Effexor tab, but elected not to sue Sun due to different undisclosed legal arguments.
[An AB rating indicates therapeutic equivalence.]
The Effexor XR settlement allows Teva to enter market with substantial share gains from generic tab or Pristiq. We expect Pristiq [an anti-depressant] approval in depression (late February 2008 Prescription Drug User Fee Act date), however Pristiq uptake could be impacted by Sun's non-AB-rated tablets and Teva's market-share trigger.
U.S. Effexor XR accounts for less than 20% of estimated 2008 earnings per share assuming 1% sales decline. In Canada, Teva suspended royalties on generic XR as another generic entered the market. We estimate third-quarter 2007 royalty at less than $20 million (about 1% of pretax income).
As for Protonix [for acid reflux], the new 10-Q language says, "Protonix patent is valid and enforceable and believe that the patent will withstand the challenges by these generic companies." Settlement remains a possibility although Teva/Sun could launch approved generics at any time. Protonix accounts for more than 15% of estimated 2008 EPS assuming 3% sales growth.
As for generic Zosyn [an injectable anti-bacterial], Wyeth removed language that earliest expected U.S. generic launch was late 2007 and added that timing depends on FDA responses to citizen petitions. U.S. Zosyn accounts for about 2% of estimated 2008 EPS assuming 28% sales decline. In ex-U.S. markets, Wyeth is facing generics in Spain, Portugal and Greece with additional markets possible in the near future; the generic was approved in Canada in September 2007.
Wyeth trades at an 18% discount to its peers based on estimated 2008 EPS. Despite reasonable valuation, mounting risks are concerning. Our 2007 to 2010 EPS compounded annual growth rate declines to 0% from 9% if generic XR, Protonix and Zosyn emerge in 2008. Downside is supported by its pipeline (bapineuzumab) and potential takeover.
-- John Boris
-- Rajeev Jashnani
