Stocks were little changed on Wednesday, with advancing and declining issues about equal in number, but the Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) again closed in record territory.
Today's stock market
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Utilities recovered a little from recent weakness; the Utilities Select SPDR ETF (NYSEMKT:XLU) closed up 1%.
A significant approval from the U.S. Food and Drug Administration sent shares of Mylan N.V. (NASDAQ:MYL) soaring -- and those of competitors in the opposite direction -- while Office Depot (NASDAQ:ODP) cratered after announcing an acquisition.
Mylan gets a green light from the FDA
Generic-drug maker Mylan announced yesterday that the U.S. Food and Drug Administration has approved its generic version of Teva Pharmaceutical's (NYSE:TEVA) widely prescribed multiple sclerosis drug Copaxone, causing Mylan's stock to soar 16.2% and Teva's to plummet 14.6%.
The FDA approved both a daily 20 mg/ml dose and a 40 mg/ml dose that can be administered three times a week. There is already a generic competitor for the daily dose from Momenta Pharmaceuticials, whose stock took a 13.7% hit on the news, but the latter competes with a formulation that Teva is vigorously defending in the courts and represents 85% of the drug's prescriptions in the U.S.
The approval took observers by surprise, as investors were expecting it to come next year, based on a statement by Mylan CEO Heather Bresch in August that due to "the uncertain U.S. regulatory environment," generic Copaxone revenue was moved from 2017 guidance to 2018. Copaxone sales are running at an annual rate of $4.34 billion, according to Mylan, so the potential impact on Mylan's revenue, estimated to be about $12 billion this year without it, is huge. For Teva, Copaxone was 18% of revenue and 52% of non-GAAP operating income in the most recent quarter, so the stakes in its ongoing legal battle over the drug are high.
Office Depot moves into services
Office Depot announced it is moving beyond traditional office products and into business and technology services by buying technology solutions provider CompuCom from private equity firm Thomas H. Lee Partners for about $1 billion. That announcement plus a preliminary release of third-quarter results and a downward revision of full-year guidance caused the stock to get crushed by 17.7%.
The deal calls for the issuance of 45 million shares of Office Depot stock, an increase of about 8%, and $750 million in debt. CompuCom has a field technician workforce of 6,000, which provides onsite and remote support for Fortune 500 companies, as well as small and medium-sized businesses. Office Depot management expects the acquisition to add $1.1 billion in annual sales.
Office Deport also forecast a sales decline of 7% to 8% in the current quarter, with a drop in same-store sales of 5% to 6%. Guidance for 2017 operating income was lowered from $500 million to a range of $400 million to $425 million.
"Technology is the office supply of the future," said Office Depot CEO Gerry Smith in the press release. "Today marks a significant milestone as we move to provide a unique business services platform for our current and future customers. Acquiring CompuCom is the first step in this new strategic direction."
That Office Depot needs to do something to expand its business beyond its brick-and-mortar stores was made all the more obvious by the latest news of sagging sales. But the market doesn't seem ready to believe this new direction will be adequate to restore the company to growth.