Just as Teva Pharmaceuticals (NYSE: TEVA) rallied after it hired a new CEO, the company gave up nearly all of those gains when the Food and Drug Administration approved Mylan’s generic version of Teva’s Copaxone.
The approval on October 4 comes earlier than markets expected. It was originally thought that Copaxone would not face a competitor until next year. Instead, the FDA will allow Mylan to make a 40 mg/mL and 20 mg/ mL dosage for patients suffering from a relapsing form of multiple sclerosis. The setback adds uncertainties to Teva’s turnaround plans. It will hurt the company’s earnings by $0.25 a share. As such, the drop on the stock looks overdone.
Teva still has two outstanding infringement cases on appeal that have not yet been adjudicated. In the near-term, shareholders may look to the company’s next earnings report before doing anything, such as averaging down on the stock. Teva will more clearly delineate the impact on cash flow. This magnifies Teva’s troubles, because the levered company needs the cash to manage its vey debt burden.
Takeaway
Teva’s deep undervaluation will persist longer after Mylan enters the Copaxone market.
