Since late 2013, the share prices of the two leading generics names, Teva Pharmaceutical Industries (TEVA) and Mylan (MYL), have moved largely in tandem with each other. This is despite several company-specific issues and well-reported controversies plaguing each of the two. Last week, even though Teva plunged much more than Mylan and its share price gap with Mylan widened to more than $12 in the negative, its Enterprise Value (EV) was still double that of Mylan. Teva's EV/EBITDA ratio was around 60% higher than that for Mylan.
With the share price of Teva having been decimated, the stock is looking tempting to "rebound" players. Nevertheless, caution is warranted as the extent of the generics pricing weakness remains uncertain. Furthermore, its net debt has continued to rise (4.56x EBITDA as of numbers reported in 2Q 2017 earnings, from 4.49 in 1Q) even as its debt ratings was downgraded one notch by Moody's Investors Service. For high risk-takers interested in the generics field, Mylan looks like the safer bet among the two. While Mylan remains mired in its Epipen saga, its drugs pipeline seems relatively healthier based on an overview comparison of recent filings. Financials-wise, Mylan's debt-to-equity is turned lower than Teva's this year and it generated higher quarterly free cash flow for the first time since 2014. In terms of percent of shares outstanding short, Teva superseded Mylan for the first time, albeit narrowly, last month. This could also signify market preference for the latter.