Last week Mylan (MYL) announced it was launching a generic version of Allergan’s (AGN) Estrace vaginal cream:
Global pharmaceutical leader Mylan N.V. (NASDAQ, TASE: MYL) today announced the U.S. launch of Estradiol Vaginal Cream USP, 0.01%, the first generic version of Allergan’s Estrace® Cream. Mylan received final approval from the U.S. Food and Drug Administration (FDA) for its Abbreviated New Drug Application (“ANDA”) for this product, which is indicated in the treatment of vulvar and vaginal atrophy.
Mylan CEO Heather Bresch said, “The approval and launch of Estradiol Vaginal Cream strengthens our robust women’s healthcare portfolio and our commitment to helping women manage their health across every stage of their lives, from contraception and hormone replacement therapy to certain disorders that are highly prevalent in women, like hypothyroidism. Mylan is now one of only a few companies that will offer Estradiol as an option across four delivery systems – cream, gel, transdermal patch and tablet.
AGN was up over 2% in mid-morning trading on price hikes of over 9% for several drugs, including Estrace:
Below is my take on how generic Estrace could impact Allergan long-term.
The Situation
Estrace vaginal cream is a synthetic hormone called estradiol which behaves similarly to estrogen. According to the FDA:
Endogenous estrogens are largely responsible for the development and maintenance of the female reproductive system and secondary sexual characteristics.
Estrace is indicated for the treatment of (1) moderate to severe vasomotor symptoms associated menopause, (2) moderate to severe symptoms of vulvar and vaginal atrophy associated with menopause, and (3) hypoestrogenism due to hypogonadism, castration or primary ovarian failure, and (4) prevention of osteoporosis, amongst others.
Allergan generated Q3 2017 sales of $103 million from Estrace – all within the company’s U.S. general medicine segment. Estrace sales grew about 3% Y/Y and represented 3% of Allergan’s Q3 revenue of $4.0 billion. Recent price hikes notwithstanding, organic revenue growth has been difficult to come by for the company. Generic Estrace will likely dampen Estrace sales as Allergan could be hit by a loss of pricing power and market share. Teva’s (TEVA) recent launch of a generic version of Estrace cream will not help matters. Allergan could experience a sales hit as early as Q1 2018, while the full impact of generic Estrace might not be felt until Q2 2018.
Other Headwinds
Allergan is known for having a diversified product portfolio and an impressive drug pipeline. Esmya (ulipristal) could face headwinds amid an EU investigation into the drug’s link to liver damage. Esmya was expected to generate hundreds of millions of revenue and give Allergan a near term sales boost. In October 2017 Judge William Bryson invalidated Restasis patents and I view this as the biggest threat to the company’s growth thesis. Restasis is about 9% of total revenue and 12% of Allergan’s total income. An inter partes review (“IPR”) might be the only thing standing in the way of generics rivals launching generic Restasis.
Judge David Ruschke recently ruled the University of Minnesota waived its immunity in an IPR by filing patent infringement charges in federal court; this ruling could potentially make the IPR pursuant to Restasis a moot point. Restasis and Estrace represent a combined 12% of Allergan’s total revenue. A hit to both could hurt revenue and EBITDA, and also negatively impact investor sentiment. While price increases might be ethereal, generics rivals continue to launch assaults on Allergan’s product portfolio unabated.
Conclusion
Generic Estrace is here and generic Restasis could be next. I find it difficult to justify AGN’s 11x EBITDA trading multiple, which connotes a growth stock. AGN remains a sell.
On Trump And The Global Economy
Trump And The Global Economy Town Hall took place October 24th in Fort Greene. It Featured Professor Lance Brofman, Coconut Rob (Coconut Rob Smoothies), Wuyi Jacobs (AfroBeats Radio) and Ralph Baker, author of Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead.
The event was well-received by the community. We parsed through President Trump’s proposed tax plan and [i] how it was pure economic folly and [ii] high net worth individuals could potentially game the system by shifting income around. Apparently, Kansas Coach Bill Self did this when the state of Kansas cut taxes in the past. We discussed the pros and cons of technology on workers and the economy. How will the economy and country prosper under Trump’s leadership vis-a-vis Obama? What’s behind the verbal sparring with black athletes, ESPN’s Jemele Hill and North Korea’s Kim Jong Un?
