Teva Pharmaceuticals (TEVA) is back to square one as it got hit by some bad news at an unfortunate point in time. Competitor Mylan (MYL) is launching a generic version of Teva´s top-selling COPAXONE drug, although final resolutions of pending patent appeals and other litigation still has to close.
As operating earnings could fall by $1.3 billion a year, the news is clearly very bad, even if it has been anticipated at some point in the future. Leverage ratios will jump, as Teva probably needs to sell more assets while buyers know that it is a motivated seller, which is never a good bargaining position.
The situation has gotten more uncertain and while shares are trading near their lows, my enthusiasm is held back by a +6 times leverage ratio which is simply very high, even as earnings multiples might be very low. Teva will need more asset sales which limit the upside for equity holders in the long term, certainly if and when prices are not going to be great.
