[Opinions from the sell-side analysts are split with some thinking this is a non-issue and others thinking this is the end of the business model as we know it for generic drugs in the U.S. My own view is closer to the latter. If MRK’s action becomes commonplace it will seriously affect the profitability of the generic-drug business in the U.S. unless Congress steps in with a legislative fix, which is what I think they ought to do.]
>> DOW JONES NEWSWIRES June 22, 2006 1:24 p.m. By Peter Loftus
Investor concerns about Teva Pharmaceuticals Industries Ltd. (TEVA) continued Thursday following Merck & Co.'s (MRK) decision to discount prices for its Zocor cholesterol pill, which is expected to hurt Teva's planned sale of a generic version beginning Friday.
Friedman Billings Ramsey & Co. downgraded its rating on Teva shares to market perform from outperform Thursday, saying Merck's move would cut Teva's sales and earnings this year and in 2007.
In early afternoon trading, Teva shares were off 48 cents, or 1.5%, at $31.79 on volume of 35.5 million, well above the daily average of 6.3 million. Wednesday the stock plunged 9.5%.
Meanwhile, however, health insurer Aetna Inc. (AET) lent support to Teva by saying Thursday it would encourage its members to use generic versions of Zocor after the drug's patent expires Friday. And some analysts said the concerns about Teva were overblown.
Zocor has been one of the best-selling drugs in the world, with Merck, of Whitehouse Station, N.J., posting $4.4 billion in revenue from the drug last year. Teva, which specializes in generics, has long planned to introduce a cheaper, generic version of Zocor upon Friday's patent expiration.
Before this week, it was expected that Israel-based Teva would rack up big sales by having up to six months of market exclusivity for selling most dose levels of generic Zocor, known as simvastatin. Ranbaxy Laboratories Ltd. of India is to sell the highest dose level of the generic drug beginning Friday. The companies were expected to sell simvastatin at a discount to Zocor, which is typical when a branded drug patent expires.
But Merck threw a bit of a wrench into their plans by reaching deals with UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP), the two largest managed-care companies in the U.S., to price Zocor lower than the expected prices for generic simvastatin. Merck's decision is seen as a move to preserve its share of the cholesterol-lowering drug market.
Now, as a result of Merck's move, many analysts expect Teva to generate lower sales from simvastatin than they previously thought, as Teva is expected to match Merck's discount. Some analysts think Teva not only will be forced to charge a lower price for simvastatin, but also will get less market share than originally thought.
A.G. Edwards & Sons Inc. Albert Rauch analyst slashed his estimate of Teva's simvastatin revenue for the second half of 2006 to $65 million from $385 million. That would cut Teva's full-year earnings to $1.86 a share from his previous estimate of $1.99 a share. Teva has said it expects adjusted 2006 earnings of $1.82 to $1.90 a share, which didn't reflect the expected impact from six months of exclusivity for simvastatin. Teva had 2005 sales of $5.25 billion.
Teva officials couldn't immediately be reached.[Please see #msg-11694252 for TEVA’s reaction.]
Friedman Billings Ramsey analyst Robert Uhl lowered his rating for Teva shares Thursday and cut his price target to $37 from $46. "A move by Merck to grant price discounts on branded Zocor to a major customer during the period of generic exclusivity signals a new battlefield in the price competition war that generic industry participants will have to face," Uhl wrote in a research note. "We do not know if the arrangement will spread to other prescription benefit plans or to other brand companies."
Merck spokeswoman Amy Rose said the company doesn't discuss details of its relationships with managed-care companies.
Merck's move also would presumably lower its Zocor revenue for 2006, but Rose said the company's previous forecast of a range of $2.3 billion to $2.6 billion still stands.
In addition to branded Zocor and the generic versions from Teva and Ranbaxy, patients will be able to buy an "authorized" generic simvastatin from Dr. Reddy's Laboratories under an existing deal with Merck. The American depository shares of Dr. Reddy's declined 2.6% Thursday on concerns that Merck's discount of branded Zocor would hurt sales of the authorized generic version.
It's not all doom and gloom for Teva, according to Goldman Sachs analysts. In a research note, they said Teva anticipated Merck's move and investor reaction to it has been overblown. <<
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