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TEVA Posts In-Line Q3 Earnings, Lowers Sales View, Stock Down

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Teva Pharmaceutical Industries Limited (TEVA - Free Report) reported third-quarter 2020 earnings of 58 cents per share, which were in line with the Zacks Consensus Estimate. Earnings were flat year over year.

Revenues of the generic drugmaker came in at $3.98 billion, which missed the consensus estimate of $4.06 billion. Sales declined 3% on a reported as well as constant currency terms year over year due to lower sales of OTC products and Copaxone in all regions and lower demand for some products due to the pandemic.

Sales in North America as well as Europe were hurt by disruptions to physician patient interactions and reduced doctor visits amid the pandemic. However, demand for some products increased related to the treatment of COVID-19 symptoms.

Segment Discussion

Teva reports through the following segments based on three regions — North America (United States and Canada), Europe and International Markets.

North America segment sales were $2.02 billion, down 2% year over year due to lower sales of branded drugs, Copaxone and Bendeka/Treanda, which offset higher sales of generic products.

In the United States, sales declined 1% to $1.89 billion.

Copaxone posted sales of $236 million in North America, down 13% year over year due to generic erosion. Combined sales of Bendeka and Treanda declined 15% to $105 million due to competitive pressure. The launch of a competing bendamustine solution called Belrapzo by Eagle Pharmaceuticals (EGRX - Free Report) in June 2019 has been hurting sales of Bendeka/Treanda.

ProAir sales declined 30% to $50 million. Qvar sales were $42 million in the quarter, down 29% due to lower volume and increased competition.

Relatively newer drug, Austedo, approved to treat chorea associated with Huntington’s disease and tardive dyskinesia, recorded sales of $168 million in the quarter in North America compared with $161 million in the previous quarter, driven by higher volumes. 

Ajovy, Teva’s migraine treatment, recorded sales of $35 million in the quarter compared with $34 million in the previous quarter. While the launch of Teva’s auto injector device for Ajovy in May boosted sales, the company lost new prescription share in the quarter.

Generic products revenues rose 2% at $928 million in the North America segment as higher sales from the launch of generic products including Truxima (Teva’s biosimilar to Roche’s [(RHHBY - Free Report) ] Rituxan) and ProAir authorized generic offset lower volume of other generic products.

In September end, Teva launched its generic versions of Gilead’s (GILD - Free Report) HIV drugs, Truvada and Atripla in the United States. However, the company did not record sales from these drugs in the third quarter.

Distribution revenues, generated by Anda, declined 3% in the quarter to $341 million due to lower demand.

The Europe segment recorded revenues of $1.12 billion, down 4% (down 7% in constant currency terms) year over year due to fewer patient visits to doctors amid the pandemic, which hurt prescription trends. Meanwhile, lower sales of Copaxone and oncology products due to generic competition also hurt sales.

In the International Markets segment, sales declined 6% (down 1% in constant currency terms) to $529 million due to lower sales in Japan and the negative effect of the COVID-19 pandemic. Meanwhile, loss of revenues from the sale of certain assets in the Israeli market also hurt this segment’s sales.

The Other segment (API manufacturing business and certain contract manufacturing services) recorded revenues of $316 million, down 1% year over year, in constant currency terms.

Costs Decline

Adjusted gross margin rose 100 basis points (bps) to 52.4% in the quarter. Adjusted research & development expenses declined 3.7% year over year to $233 million. Selling and marketing (S&M) expenditure declined 2.7% from the year-ago level to $566 million due to cost-cutting activities. General and administrative (G&A) expenses were almost flat at $269 million. Adjusted operating income declined 3% in the quarter to $1.03 billion. However, adjusted operating margin was flat at 25.8% in the quarter.

2020 Guidance

Teva slightly lowered its previously issued sales guidance for 2020 to reflect the impact of COVID-19. It expects revenues to be in the range of $16.5 - $16.8 billion versus $16.6 - $17.0 billion previously. Earnings guidance was tightened from a band of $2.30-2.55 per share to $2.40-2.55 per share. Adjusted gross margin is expected to be 52.5%. Operating margin is expected to be in the range of 25.5% to 26%.

Our Take

Teva’s third-quarter results were rather weak as its earnings matched estimates while sales missed the same. The company also lowered its sales outlook for the year, leading the shares to decline 6.5% on Thursday, in response. Teva’s share price has declined 12.1% this year so far compared with the industry’s decrease of 6.2%.

Teva faces challenges in the form of generic erosion of Copaxone, new competition for branded products, pricing erosion in the U.S. generics business, a high debt load and a sparse branded pipeline. Nonetheless, its newest drugs, Austedo and Ajovy could emerge as significant drivers of long-term sales growth. With encouraging progress on restructuring activities, stabilization in U.S. and European generics business through new generic launches and improvement in financials, we believe the company may return to growth in a couple of years.

Teva, however, is involved in an opioid litigation and faces DOJ investigations on allocations of price fixing, which are overhangs on its stock. Chief executive officer (CEO) Kåre Schultz said on the conference call that the opioid and price fixing issues developed to be more complex than the company had assumed and the timeframe for resolution will take significantly longer than expected.

Currently, Teva has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Teva Pharmaceutical Industries Ltd. Price, Consensus and EPS Surprise

 

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