Shares of generic drug companies are slipping on Monday after Morgan Stanley analyst David Risinger downgraded Endo International (ENDP) and Teva Pharmaceutical (TEVA) to Underweight, a sell-equivalent rating, as he anticipates generic company pricing pressure, increasing competition and litigation risk downside. The analyst is most concerned about further potential downside for both stocks due to branded opioid exposure.
SELL TEVA, ENDO: In a research note to investors on Monday, Morgan Stanley's Risinger downgraded Endo International and Teva Pharmaceutical, both to Underweight from Equal Weight, cut his price target on Endo shares to $3 from $8 and lowered his price target for Teva shares to $6 from $16. In the wake of Amneal's (AMRX) recent 28% EBITDA guidance cut, Risinger noted that Amneal faces company-specific challenges but also said he is concerned about potentially worsening U.S. competitive pricing pressure. Moreover, he is worried that Endo and Teva both face "underappreciated" risks from buying group pressure being worse than expected, increasing competition among generic manufacturers and the fact that opioid litigation is "just getting started" with thousands of lawsuits having been filed.
The analyst has learned that buying groups are pressuring generic prices more than anticipated, including McKesson (MCK) contracting in the second quarter, and noted that buyers are now "dictating prices more firmly." Meanwhile, the Food and Drug Administration is prioritizing approvals of new generics when there is limited competition, so existing player’s most profitable products face commoditization risk, he contended.
Overall, Risinger expects Endo to deliver "solid" earnings results in 2019-2020, but face competition and earnings pressure long-term. Teva, on the other hand, “could disappoint in 2019” if it fails to launch Restasis, Nuvaring, and/or Forteo soon, he added.
Risinger also cut his earnings estimates for Mylan (MYL) and lowered his price target on the shares to $22 from $32, though he maintained an Overweight rating on the generic drugmaker, citing low valuation and the potential for corporate action. Additionally, the analyst lowered his price target on Amneal shares to $4 from $12.
PRICE ACTION: In afternoon trading, shares of Teva have plunged 7.5% to $8.56, while Endo's stock has slid 1.3% to $4.04. Also lower, Mylan has dropped almost 1% to $19.04, while Amneal has slipped 3.3% to $3.58.
Teva
-0.735 (-7.95%)
Endo
-0.09 (-2.19%)
McKesson
-2.33 (-1.61%)
Symbol now VTRS
-0.15 (-0.78%)
Amneal Pharmaceuticals
-0.14 (-3.79%)