On Jan. 29, the Food and Drug Administration approved Teva Pharmaceutical’s (NYSE:TEVA) auto-injector device for use with its Ajovy calcitonin gene-related peptide migraine prevention drug. That news could be very good for both patients using Ajovy and owners of TEVA stock.
“The approval of the Ajovy auto-injector is another important step forward for Teva and the migraine community,” said Brendan O’Grady, Teva executive vice president, North America, in a commercial.
He continued:
Ajovy is the only FDA approved anti-CGRP that offers the flexibility of quarterly 675 mg, or monthly 225 mg dosing options, and we are pleased that patients and their healthcare providers will be able to decide if an auto-injector is the right administration option for their needs.
A Push for Market Share
At the moment, Teva finds itself in third place when it comes to market share in the CGRP migraine prevention market at 13.4%, behind Amgen’s (NASDAQ:AMGN) drug Almovig at 49.3%, and Emgality, Eli Lilly’s (NYSE:LLY) drug, at 37.3%.
With plans to capture 25% of the market, the nod from the FDA should help reduce the sting of having to abandon its planned use of Ajovy for cluster headaches, a move that was dropped last year after a failed phase 3 trial, which gave Eli Lilly the market to itself.
Through the first nine months of 2019, Ajovy had revenues of $68 million. Jefferies analysts had previously estimated that Ajovy would hit sales of $102 million in 2019 and $215 million in 2020. However, both Amgen and Eli Lilly have been spending heavily on advertising their respective drugs, which puts the estimates in jeopardy.
Given the FDA approval of the auto-injector, Teva’s expected to roll out its availability in the next few months. While that’s not going to do much for Teva in the fourth quarter of 2019 or the first quarter of 2020, it should help energize sales from April to the end of the year.
That’s one reason InvestorPlace contributor Larry Ramer recently suggested Teva could be the next General Electric (NYSE:GE). Battered, but not beaten. Ramer reminded readers that RBC Capital analyst Randall Stanicky also believes that the addition of an auto-injector should be a net positive for the Ajovy market share.
TEVA Stock Has Other Strengths
Back in December, I called Teva a speculator’s dream stock. My rationale was simple: It traded for 2.8 times sales in 2015, more than four times today’s valuation. Although I don’t think risk-averse investors should pile into TEVA stock, the fact that good news is emanating from the Israeli company is a big reason for speculative investors to consider placing a bet.
Could it get all or part of the way back to $70 where it traded in 2015? With nearly $26 billion in debt, both short- and long-term, it’s got its hands full. However, in the first nine months of 2019, it still had free cash flow of $1.1 billion. Admittedly, down from $3.2 billion a year earlier, it was still positive.
In my December article, I argued that the company expects to finish the year with $1.7 billion in free cash flow. Based on an enterprise value of $39 billion, that’s a free cash flow yield of 4.4%. With a little luck from drugs such as Amjovy, assuming its enterprise value doesn’t increase over the next 24 months, that yield could rise to 8.9%, providing investors with a much better value proposition.
As my colleague stated, Teva intends to make China a big part of its business over the next 5-10 years. The same goes for Israel and elsewhere.
The news that Ajovy is now available with an auto-injector is a welcome relief for shareholders hoping it would bring the fight to Amgen and Eli Lilly. With a more attractive drug delivery system in hand, it just might.
I’m not suggesting investors put TEVA in your 401(k). However, if you can afford to risk the entire bet, the latest news should help push it higher in the months ahead.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
