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TEVA Beats on Q2 Earnings, to Settle Opioid Lawsuit for $4.3B

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Teva Pharmaceutical Industries Limited (TEVA - Free Report) reported second-quarter 2022 adjusted earnings of 68 cents per share, which beat the Zacks Consensus Estimate of 57 cents. Earnings rose 15.3% year over year.

Revenues for the second quarter came in at $3.79 billion, which marginally missed the consensus estimate of $3.80 billion. Total revenues declined 3% on a reported basis due to currency headwinds. Revenues were hurt by currency changes due to a stronger dollar as 50% of Teva’s revenues come from sales denominated in currencies other than the U.S. dollar.

On a constant-currency basis, sales rose 1% due to higher revenues of generic products, which offset lower revenues of some branded drugs in the North America segment.

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 $1.90 billion, down 2% year over year due to lower sales of Copaxone and Bendeka/Treanda, which partially offset higher sales of generic products. In the United States, sales declined 2% from the prior-year quarter to $1.77 billion.

Copaxone posted sales of $94 million in North America, down 38% year over year due to generic erosion in the United States and lower market share due to increased competition.

Combined sales of Bendeka and Treanda declined 22% from the year-ago quarter to $83 million. Sales of Bendeka and Treanda were hurt due to the availability of alternative therapies and continued competitive pressure from Eagle Pharmaceuticals’ (EGRX - Free Report) bendamustine solution called Belrapzo.

Eagle Pharmaceuticals received FDA approval for Belrapzo to treat patients with chronic lymphocytic leukemia. Eagle Pharmaceuticals’ Belrapzo is also approved for the treatment of patients with indolent B-cell non-Hodgkin lymphoma.

Austedo recorded sales of $204 million in North America, up 17% year over year due to volume growth.

Ajovy, Teva’s migraine treatment, recorded sales of $49 million for the quarter, up 9% year over year, driven by higher volumes.

Generic/biosimilar product revenues rose 8% from the year-ago period to $1.03 billion in the North America segment due to higher revenues from Teva’s biosimilar version of Bristol-Myers’ (BMY - Free Report) multiple myeloma drug, Revlimid.

Teva launched the first generic version of Bristol-Myers Revlimid in March this year. The generic version of Bristol-Myers’ Revlimid is approved for the treatment of multiple myeloma in combination with dexamethasone, certain myelodysplastic syndromes, and later-line mantle cell lymphoma.

Increased competition continued to hurt generic products sale in the second quarter.

Distribution revenues, generated by Anda, declined 2% year over year for the quarter to $308 million due to lower demand.

The Europe segment recorded revenues of $1.17 billion, down 1% year over year on a reported basis due to currency headwinds. Sales rose 8% in constant currency, driven by higher demand for generic and OTC products with the easing of COVID restrictions and higher sales of new generic products.

In the International Markets segment, sales declined 6% year over year to $454 million. In constant currency terms, sales rose 3% from a year ago due to higher sales in some markets, partially offset by lower sales in Japan. Sales declined in Japan due to regulatory price reductions and generic competition.

The Other segment (comprising the API manufacturing business and certain contract manufacturing services) recorded revenues of $257 million, down 14% year over year on a reported basis and 10% in constant currency terms.

Costs Discussion

Adjusted gross margin rose 100 basis points (bps) to 54.4% for the quarter. Adjusted research & development expenses declined 8.6% year over year to $222 million due to a decline in the neuroscience, immunology and generic area, which offset higher costs related to biosimilar pipeline candidate projects. Selling and marketing expenditure declined 3.3% from the year-ago level to $563 million. General and administrative expenses rose 11.7% from the prior-year level to $258 million. Adjusted operating income declined 1% year over year in the quarter to $1.02 billion.

Nationwide Opioid Settlement

In the quarter, Teva reached a nationwide settlement in principle to resolve most of its opioid-related litigation. Teva has thousands of lawsuits with cities, states and Native American tribes, which claim that it is one of the several companies whose opioid-based drugs are responsible for fueling the nationwide opioid epidemic. Per the settlement, Teva will pay up to $4.25 billion (including the already settled cases) plus $100 million for Native American tribes, which will be spread over 13 years. Teva will provide $1.2 billion worth of its new generic version of Narcan nasal spray to the states over the next 10 years. This amount is included in the $4.25 billion settlement figure. The spray can reverse an overdose from opioids. The agreement is pending participation by states and subdivisions. The required number of states and local governments need to agree to deal terms before the settlement can be finalized.

2022 Guidance Lowered

Teva lowered its revenue guidance from a range $15.4 billion - $16 billion to $15.0 billion - $15.6 billion due to currency headwinds and lower Copaxone sales.

Sales of Copaxone in all regions are now expected to be approximately $700 million, lower than approximately $750 million expected earlier due to increased competition and currency headwinds.

Teva expects Ajovy revenues of approximately $400 million (maintained) while Austedo revenues are expected to be approximately $1.0 billion (maintained).

Adjusted earnings guidance was maintained the range of $2.40-$2.60 per share. Adjusted operating income is still expected in the range of $4.2-$4.5 billion.

Adjusted tax rate is expected to be in the range of 13% to 14%, much lower than 18% to 19% guided previously.

The tax rate outlook was revised due to a portion of the realization of losses related to an investment in one of Teva’s subsidiaries in the United States.

Free cash flow is expected to be in the range of $1.9-$2.2 billion (maintained).

Our Take

For the second quarter, Teva beat estimates for earnings but missed the same for sales. However, it lowered its total revenue and Copaxone sales outlook for the second time this year. Despite the sales guidance cut, Teva’s shares were up in after-hours trading on Jul 26 as well as in pre-market trading on Jul 27 in response to the nationwide opioid settlement.

Teva’s share price has declined 11.1% this year so far compared with the industry’s 29.2% decline.

Zacks Investment Research

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The nationwide settlement for the costly opioid litigations removes a significant overhang for Teva. The company had been pursuing settlement talks for more than two years to resolve the lawsuits.

Teva is seeing continued growth of Austedo prescriptions and market share growth for key growth driver, Ajovy. Revenues of generic and OTC products are improving in some countries like Europe, following the easing of COVID-19 restrictions, while successful generic launches are benefiting U.S. revenues. However, a strong foreign exchange headwind is hurting the top line

Zacks Rank & Stock to Consider

Teva currently 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 and EPS Surprise

Teva Pharmaceutical Industries Ltd. Price and EPS Surprise

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

A drug/biotech worth considering is Eli Lilly (LLY - Free Report) , which has a Zacks Rank #2 (Buy).

Eli Lilly’s stock has risen 20.1% this year. Estimates for Eli Lilly’s 2022 earnings have gone up from $8.28 to $8.34 per share, while those for 2023 have increased from $9.47 to $9.55 per share over the past 30 days.

Eli Lilly has a four-quarter earnings surprise of 2.26%, on average.