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Teva's (TEVA) Q3 Earnings and Revenues Miss, Stock Down

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Teva Pharmaceutical Industries Limited (TEVA - Free Report) reported third-quarter 2021 earnings of 59 cents per share, which missed the Zacks Consensus Estimate of 65 cents. Earnings, however, rose 1.7% year over year.

Revenues of this Israeli generic drugmaker came in at $3.89 billion, which missed the consensus estimate of $4.08 billion. Sales declined 2% on a reported basis and 3% in constant currency due to lower revenues in the North America segment. Revenues were also affected by the impact of the COVID-19 pandemic.

Shares were down 4.9% on Oct 27, in response to the tepid results. Teva’s share price has declined 7.5% this year so far, in comparison with the industry’s 9.6% decline.

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Segment Discussion

The company reports through the following segments based on three regions — North America (comprising the United States and Canada), Europe and International markets.

North America segment sales were $1.88 billion, down 7% year over year due to lower sales of Copaxone and generic products. The segment has seen lower demand for some products due to reduced physician and hospital activity amid the COVID-19 pandemic. Yet, demand for some products in North America increased related to the treatment of COVID-19 and its symptoms.

In the United States, sales declined 7% from the prior-year quarter to $1.75 billion.

Copaxone posted sales of $133 million in North America, down 44% year over year due to generic erosion in the United States.

Combined sales of Bendeka and Treanda declined 9% from the year-ago quarter to $95 million. Sales of Bendeka and Treanda were hurt on account of competition from Eagle Pharmaceuticals’ (EGRX - Free Report) bendamustine solution called Belrapzo, which was launched in June 2019.

ProAir sales declined 37% from the prior-year period to $31 million. Austedo — approved to treat chorea associated with Huntington’s disease and tardive dyskinesia — recorded sales of $201 million in North America for the quarter, up 19% year over year due to volume growth.

Ajovy, Teva’s migraine treatment, recorded sales of $46 million for the quarter, up 31% year over year.

Generic product revenues fell 7% from the year-ago period to $859 million in the North America segment due to an increase in competition and lower volume.

Distribution revenues, generated by Anda, rose 7% year over year for the quarter to $363 million due to higher demand.

The Europe segment recorded revenues of $1.22 billion, up 9% year over year on a reported basis and 6% in constant currency. Sales of generic and OTC products alongside Ajovy rose in the segment.

In the International Markets segment, sales remained flat year over year at $530 million. In constant currency terms, sales increased 1% from a year ago due to higher sales in most markets served and a $35-million milestone payment from partner Otsuka related to Ajovy’s launch in Japan. Sales continued to decline in Japan on account of regulatory price reductions, generic erosion of some products and divestment of the majority of assets from the Japan-based business venture.

Revenues continued to be affected by the ongoing impact of the COVID-19 pandemic on markets served, and customer stocking and purchasing patterns.

The Other segment (comprising the API manufacturing business and certain contract manufacturing services) recorded revenues of $262 million, down 17% year over year on a reported basis as well as in constant currency terms.

Margins Rise

Adjusted gross margin rose 120 basis points (bps) to 53.6% for the quarter due to improved profitability from generic drugs in North America and Europe. Adjusted research & development expenses declined 6.9% year over year to $217 million due to a decline in pain and neuropsychiatry as well as biosimilar/generic pipeline candidate projects. Selling and marketing expenditure rose 0.2% from the year-ago level to $567 million. General and administrative expenses rose 2.2% from the prior-year level to $275 million. Adjusted operating income rose 2% year over year for the quarter to $1.04 billion due to higher profits from Europe and International segments.

2021 Guidance Maintained

Teva reiterated its sales guidance for revenues and earnings per share for 2021. It expects revenues for the full year in the range of $16.0-$16.4 billion. The Zacks Consensus Estimate for 2021 revenues stands at $16.23 billion. The earnings guidance has been maintained in the range of $2.50-$2.70 per share.

Our Take

Teva missed both earnings and sales estimates for the third quarter. Yet, sales showed signs of recovery in Europe as the company experienced an increase in volumes in the reported quarter from the first two quarters of 2021, a trend that is anticipated to continue in fourth-quarter 2021 as well.

To align its debt maturity profile with core operational performance, Teva continues its commitment to deleveraging outstanding debt. After the repayment of $1.48 billion debt during the quarter, total debt amounted to $23.75 billion on Sep 30, 2021.

Zacks Rank & Stocks to Consider

Currently, Teva has a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the biotech sector are Alkermes (ALKS - Free Report) and Regeneron (REGN - Free Report) , each carrying a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alkermes’s earnings per share estimates for 2022 have increased from $1.21 to $1.27 in the past 60 days. The stock has rallied 43.6% in the year so far.

Regeneron’s earnings per share estimates for 2021 have increased from $54.15 to $62.36 in the past 60 days. The same for 2022 has risen from $44.11 to $46.70 over the same period. The stock has rallied 22% in the year so far.