Back to top

Image: Bigstock

TEVA Stock Declines Despite Q4 Earnings and Sales Beat

Read MoreHide Full Article

Teva Pharmaceutical Industries Limited (TEVA - Free Report) reported fourth-quarter 2020 earnings of 68 cents per share, which beat the Zacks Consensus Estimate of 62 cents. Earnings rose 10% year over year due to higher operating profit and lower tax rate.

Revenues of the generic drugmaker came in at $4.45 billion, which also beat the consensus estimate of $4.36 billion. Sales were flat on a reported basis but declined 1% on constant currency terms year over year due to lower sales of Anda, Teva’s distribution business, Copaxone in all regions and lower demand for some products in Europe and North America due to lower physician and hospital activity amid the pandemic. However, demand for some products in North America increased related to the treatment of COVID-19 symptoms.

Segment Discussion

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

North America segment sales were $2.3 billion, down 3% year over year due to lower sales of Anda, branded drugs, Copaxone and Bendeka/Treanda, which offset higher sales of generic products, Austedo And Ajovy.

In the United States, sales declined 2% to $2.17 billion.

Copaxone posted sales of $213 million in North America, down 19% year over year due to generic erosion. Sales of Copaxone are expected to drop by $300 million in 2021 to $1.05 billion, the company guided.

Combined sales of Bendeka and Treanda declined 19% to $102 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 17% to $67 million. Qvar sales were $40 million in the quarter, down 40% due to lower volume.

Austedo, approved to treat chorea associated with Huntington’s disease and tardive dyskinesia, recorded sales of $185 million in the quarter in North America, up 36% year over year, driven by higher volumes. In 2021, Teva expects Austedo revenues of approximately $950 million.

Ajovy, Teva’s migraine treatment, recorded sales of $36 million in the quarter, up 42% year over year. While the launch of Teva’s auto injector device for Ajovy in 2020 boosted sales, the pandemic hurt sales, to an extent, in the quarter. Teva expects Ajovy revenues of approximately $300 million in 2021.

Generic products revenues rose 6% to $1.21 billion in the North America segment driven by strong launches of generic versions of Gilead’s (GILD - Free Report) HIV drugs, Truvada and Atripla in the United States, and higher sales of Truxima (Teva’s biosimilar to Roche’s [(RHHBY - Free Report) ] Rituxan) and ProAir authorized generic, which offset lower volume of other generic products.

Teva said the launch of generic Truvada and Atripla in the fourth quarter was quite successful though it did not provide any sales numbers.

Distribution revenues, generated by Anda, declined 22% in the quarter to $321 million due to lower demand amid the pandemic.

The Europe segment recorded revenues of $1.24 billion, up 4% year over year. However, in constant currency terms, sales declined 1% due to fewer patient visits to doctors amid the pandemic, which hurt prescription trends of some products. Meanwhile, lower sales of Copaxone and oncology products due to generic competition also hurt sales.

In the International Markets segment, sales declined 1% to $572 million. In constant currency terms, sales rose 5% as higher sales in most markets were partially offset by lower sales in Japan due to regulatory price reductions and generic erosion of some products.

The Other segment (API manufacturing business and certain contract manufacturing services) recorded revenues of $344 million, up 1% year over year, in constant currency terms.

Margins Rise

Adjusted gross margin rose 170 basis points (bps) to 52.3% in the quarter due to strong launches of generic Truvada and Atripla and lower cost of goods sold. Adjusted research & development expenses rose 7.2% year over year to $254 million. Selling and marketing (S&M) expenditure declined 5.7% from the year-ago level to $627 million due to cost-cutting activities. General and administrative (G&A) expenses were almost flat at $312 million. Adjusted operating income rose 7% in the quarter to $1.14 billion. Adjusted operating margin rose 200 basis points to 25.6% in the quarter due to lower operating expenses and higher gross margins.

2020 Results

For 2020, the company reported revenues of $16.7 billion, down 1% year over year, both on a reported and constant currency basis. Revenues were within the guidance range of $16.5 - $16.8 billion. Revenues slightly beat the Zacks Consensus Estimate of $16.58 billion.

Adjusted earnings were $2.57 per share, up 7.1% year over year. Earnings were above the guided range of $2.40-2.55 per share as well as the Zacks Consensus Estimate of $2.51 per share.

2021 Guidance

Teva issued its financial guidance for 2021. It expects revenues to be in the range of $16.4 - $16.8 billion. The Zacks Consensus Estimate stands at $16.7 billion. The guidance reflects the divestment of $240 million in 2020 revenues from generic launches in Japan.

Earnings are expected to be in the range of $2.50 - $2.70 per share. The Zacks Consensus Estimate stands at $2.64 per share.

Adjusted gross margin is expected to be 52.4%. Adjusted operating income is expected to be in the range of $4.3 billion - $4.6 billion.

Our Take

Teva’s fourth-quarter results were better-than-expected as it beat estimates for both earnings and sales. However, its 2021 outlook probably fell short of market expectations leading shares to decline almost 7% on Thursday, in response. Teva’s share price has risen 23.5% this year so far compared with the industry’s increase of 14.7%.

 

 

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 the 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 company is close to a final settlement for the opioid litigation though there is uncertainty about its timing. The New York state opioid litigation, which was scheduled to start in March 2020 has been postponed due to COVID-19.

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

 

Teva Pharmaceutical Industries Ltd. Price, Consensus and EPS Surprise

Teva Pharmaceutical Industries Ltd. price-consensus-eps-surprise-chart | Teva Pharmaceutical Industries Ltd. Quote

+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities

In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.

Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.

Click here to download this report FREE >>