Tuesday, 25 September 2018

UPDATE 1-Teva bonds slump on FDA approval of competitor generic

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Teva Pharmaceutical Industries’ bond spreads widened sharply Wednesday after competitor Mylan announced it had received FDA approval for the generic version of Teva’s Copaxone and would start shipping product “imminently”.

Bonds of the Israeli drugs group traded up to 40bp wider - a huge move for an investment grade company - and were among the most heavily traded in secondary markets, according to MarketAxess.

Teva’s 3.15% 2026s - issued just over a year ago to finance the company’s acquisition of Allergan Generics - were quoting 37bp wider Wednesday afternoon at a G-spread of 224bp. The company’s stock fell over 14.5% on Wednesday.

Moody’s said the FDA approvals of Mylan’s generic versions of Copaxone were a credit negative for Teva in a report Wednesday.

“The launch of Mylan’s generics will result in significant declines in Teva’s largest product beginning in the fourth quarter 2017,” Moody’s analysts wrote.

The Copaxone franchise represents around 18% of Teva’s revenues and around half of operating profit, according to the report.

Teva is rated Baa3 by Moody’s and BBB- by S&P - one notch above junk. Both rating agencies downgraded the company in August and September respectively.

The FDA approval is a credit positive for Mylan, Moody’s said. The ratings agency isn’t making a change to the ratings or outlooks of either company at this time.

Teva shot back at its competitor, releasing a statement saying any launch by Mylan of the new drug while patents are pending could subject Mylan to “significant damages among other remedies”.

While FDA approval of Mylan’s generic version of Copaxone was widely anticipated, it came earlier than expected, analysts at CreditSights wrote Wednesday.

“Given the earlier-than-expected approval, the stakes are now higher for Teva to defend market share ahead of a second generic entrant,” they wrote.

Teva said Mylan’s launch and others could affect its fourth quarter earnings by at least US$0.25 cents per share.

The world’s largest generic drugmaker has seen its bonds gap out since February, when its CEO resigned and there was widespread uncertainty over the company’s strategy.

Bonds widened further in August, when the Teva reported a steeper than expected drop in second-quarter earnings.

Blame was placed on weaker prices in the US, and the company warned that the fall in its generic drug prices would accelerate in the second half of 2017 and on into 2018.


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