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TEVA Q1 Earnings Miss Estimates, Sales Beat, Stock Declines
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Teva Pharmaceutical Industries Limited (TEVA - Free Report) reported first-quarter 2023 adjusted earnings of 40 cents per share, which missed the Zacks Consensus Estimate of 57 cents as well as our model estimate of 64 cents. Earnings declined 27% year over year due to lower gross margins
Revenues for the first quarter came in at $3.66 billion, which beat the Zacks Consensus Estimate of $3.60 billion. Revenues, however, missed our model estimate of $3.79 billion. Total revenues were flat on a reported basis as a strengthening dollar is hurting the company’s revenues.
On a constant-currency basis, sales increased 4% as lower revenues of some branded drugs as well as generic products in the North America segment were partially offset by higher generic revenues in Europe and International markets.
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 $1.77 billion, up 2% year over year as lower sales of branded drugs, Copaxone, Bendeka/Treanda as well as generic products were partially offset by the increase in sales of Austedo, Ajovy and Anda. In the United States, sales increased 2% from the prior-year quarter to $1.68 billion.
Copaxone posted sales of $76 million in North America, down 12% year over year due to generic erosion in the United States and lower market share owing to increased competition.
Combined sales of Bendeka and Treanda declined 23% from the year-ago quarter to $63 million. Sales of Bendeka and Treanda were hurt because of generic erosion. Teva lost orphan drug exclusivity for bendamustine products in December 2022.
Austedo recorded sales of $170 million in North America, up 10% year over year, driven by volume growth as prescription trends continued to grow. However, Austedo sales missed our model estimates of $238 million as well as the Zacks Consensus Estimate of $210 million.
Ajovy recorded sales of $49 million for the quarter, up 36% year over year driven by higher volumes. Ajovy sales beat our model estimates of $37.3 million as well as the Zacks Consensus Estimate of $40.6 million.
Generic/biosimilar product revenues declined 8% from the year-ago period to $824 million in the North American segment due to increased competition and unfavorable timing of certain customer bids.
Distribution revenues, generated by Anda, rose 24% year over year for the quarter to $424 million on account of higher demand.
The Europe segment recorded revenues of $1.18 billion, up 2% year over year on a reported basis. Sales rose 9% in constant currency, driven by higher sales of generic products.
Generic products revenues in Europe rose 12% in constant currency terms to $932 million due to higher demand for generic and OTC products following new product launches. Copaxone sales declined 12% to $59 million.
In the International Markets segment, sales were flat year over year at $492 million. In constant currency terms, sales increased 8% from a year ago.
Generic products revenues rose 9% in constant-currency terms to $400 million. Copaxone sales rose 20% to $12 million.
The Other segment (comprising the sale of active pharmaceutical ingredients to third parties and certain contract manufacturing services) recorded revenues of $219 million, down 20% year over year on a reported basis and 19% in constant currency terms.
Costs Discussion
The adjusted gross margin was 49.1% for the quarter, down 510 basis points year over year due to an unfavorable portfolio mix and higher cost of goods sold due to inflationary pressure.
Adjusted research & development expenses rose 4% year over year to $234 million due to higher costs related to generic/biosimilar and neuroscience (mainly neuropsychiatry) and immunology pipeline projects.
Selling and marketing expenditure declined 6% from the year-ago level to $546 million. General and administrative expenses were flat from the prior-year level at $296 million.
The adjusted operating margin declined 630 bps to 21.4% in the quarter due to lower gross profit margin and higher other income in the year-ago quarter.
Outlook for 2023 Reaffirmed
Teva maintained its previously issued financial guidance for 2023.
Teva expects to record revenues in the range of $14.8-$15.4 billion in 2023.
Sales of Copaxone in all regions are expected to be approximately $500 million. Teva expects Ajovy and Austedo revenues of approximately $400 million and approximately $1.2 billion, respectively.
Adjusted operating income is expected in the range of $4-$4.4 billion. Teva expects adjusted EBITDA in the range of $4.5-$4.9 billion.
Teva expects adjusted EPS in the range of $2.25-$2.55 in 2023. Free cash flow is expected to be in the range of $1.7-$2.1 billion.
Update on Opioid Litigation
Last year, Teva reached a nationwide settlement to resolve thousands of its opioid-related litigation. However, for the settlement to be finalized, the required number of states and local governments needed to agree to deal terms. Teva has already settled with or confirmed participation from 49 of the 50 states. The sign-on process for the states’ subdivisions is going well, Teva is confident that it will get similar support from the states’ subdivisions.
With the level of broad support from states and subdivisions, it can now move forward with the nationwide settlement and is hoping to make the first settlement payment in the second half of 2023.
Our Take
Teva’s first-quarter results were mixed as it missed estimates for earnings while beating the same for sales. Teva witnessed decent sales growth across all regions. Sales of relatively newer drugs, Ajovy and Austedo rose 10% and 35%, respectively across all regions on a constant currency basis. However, Austedo sales were much lower than expected. Also, Teva’s gross margins were quite weak in the quarter.
Teva’s shares were down 8.2% in response to the mixed results and weak margin performance. In the past year, shares of Teva Pharmaceuticals have risen 13.2% compared with the industry’s increase of 15.6%.
Image Source: Zacks Investment Research
But Teva expects margins to improve in the coming quarters as its portfolio mix shifts toward newer drugs, Ajovy, Austedo and Uzedy and lower costs due to supply improvements and easing of some elements of inflationary pressure, including on the cost of energy and freight. The FDA approved Uzedy (risperidone) extended-release injectable suspension for treating schizophrenia in adults in April this year. This long-acting risperidone is expected to be launched in the United States in the coming weeks.
Teva is also saving costs and improving margins through the optimization of operations for efficiency while also lowering the debt on its balance sheet.
Zacks Rank & Stocks to Consider
Teva currently carries a Zacks Rank #3 (Hold).
Teva Pharmaceutical Industries Ltd. Price, Consensus and EPS Surprise
Loss per share estimates for Ocuphire Pharma have narrowed from 29 cents to 24 cents for 2023 and from 86 cents to 81 cents for 2024 in the past 60 days. Shares of OCUP have surged 233.7% in the past year. Earnings of Ocuphire beat estimates in three of the last four quarters and missed the mark in one, the average surprise being 23.85%.
Loss per share estimates for Allogene have narrowed from $2.56 to $2.31 for 2023 and from $2.53 per share to $2.20 per share for 2024 in the past 60 days. Shares of ALLO have declined 6.2% in the past year. Earnings of Allogene beat estimates in three of the last four quarters, the average surprise being 5.08%
Loss per share estimates for Arcus Biosciences have narrowed from $4.52 to $4.42 for 2023 and from $3.51 to $3.33 for 2024 in the past 60 days. Shares of RCUS have risen 9.2% in the past year. Earnings of Arcus Biosciences beat estimates in three of the last four quarters and missed in one, the average surprise being 4.38%.
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TEVA Q1 Earnings Miss Estimates, Sales Beat, Stock Declines
Teva Pharmaceutical Industries Limited (TEVA - Free Report) reported first-quarter 2023 adjusted earnings of 40 cents per share, which missed the Zacks Consensus Estimate of 57 cents as well as our model estimate of 64 cents. Earnings declined 27% year over year due to lower gross margins
Revenues for the first quarter came in at $3.66 billion, which beat the Zacks Consensus Estimate of $3.60 billion. Revenues, however, missed our model estimate of $3.79 billion. Total revenues were flat on a reported basis as a strengthening dollar is hurting the company’s revenues.
On a constant-currency basis, sales increased 4% as lower revenues of some branded drugs as well as generic products in the North America segment were partially offset by higher generic revenues in Europe and International markets.
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 $1.77 billion, up 2% year over year as lower sales of branded drugs, Copaxone, Bendeka/Treanda as well as generic products were partially offset by the increase in sales of Austedo, Ajovy and Anda. In the United States, sales increased 2% from the prior-year quarter to $1.68 billion.
Copaxone posted sales of $76 million in North America, down 12% year over year due to generic erosion in the United States and lower market share owing to increased competition.
Combined sales of Bendeka and Treanda declined 23% from the year-ago quarter to $63 million. Sales of Bendeka and Treanda were hurt because of generic erosion. Teva lost orphan drug exclusivity for bendamustine products in December 2022.
Austedo recorded sales of $170 million in North America, up 10% year over year, driven by volume growth as prescription trends continued to grow. However, Austedo sales missed our model estimates of $238 million as well as the Zacks Consensus Estimate of $210 million.
Ajovy recorded sales of $49 million for the quarter, up 36% year over year driven by higher volumes. Ajovy sales beat our model estimates of $37.3 million as well as the Zacks Consensus Estimate of $40.6 million.
Generic/biosimilar product revenues declined 8% from the year-ago period to $824 million in the North American segment due to increased competition and unfavorable timing of certain customer bids.
Distribution revenues, generated by Anda, rose 24% year over year for the quarter to $424 million on account of higher demand.
The Europe segment recorded revenues of $1.18 billion, up 2% year over year on a reported basis. Sales rose 9% in constant currency, driven by higher sales of generic products.
Generic products revenues in Europe rose 12% in constant currency terms to $932 million due to higher demand for generic and OTC products following new product launches. Copaxone sales declined 12% to $59 million.
In the International Markets segment, sales were flat year over year at $492 million. In constant currency terms, sales increased 8% from a year ago.
Generic products revenues rose 9% in constant-currency terms to $400 million. Copaxone sales rose 20% to $12 million.
The Other segment (comprising the sale of active pharmaceutical ingredients to third parties and certain contract manufacturing services) recorded revenues of $219 million, down 20% year over year on a reported basis and 19% in constant currency terms.
Costs Discussion
The adjusted gross margin was 49.1% for the quarter, down 510 basis points year over year due to an unfavorable portfolio mix and higher cost of goods sold due to inflationary pressure.
Adjusted research & development expenses rose 4% year over year to $234 million due to higher costs related to generic/biosimilar and neuroscience (mainly neuropsychiatry) and immunology pipeline projects.
Selling and marketing expenditure declined 6% from the year-ago level to $546 million. General and administrative expenses were flat from the prior-year level at $296 million.
The adjusted operating margin declined 630 bps to 21.4% in the quarter due to lower gross profit margin and higher other income in the year-ago quarter.
Outlook for 2023 Reaffirmed
Teva maintained its previously issued financial guidance for 2023.
Teva expects to record revenues in the range of $14.8-$15.4 billion in 2023.
Sales of Copaxone in all regions are expected to be approximately $500 million. Teva expects Ajovy and Austedo revenues of approximately $400 million and approximately $1.2 billion, respectively.
Adjusted operating income is expected in the range of $4-$4.4 billion. Teva expects adjusted EBITDA in the range of $4.5-$4.9 billion.
Teva expects adjusted EPS in the range of $2.25-$2.55 in 2023. Free cash flow is expected to be in the range of $1.7-$2.1 billion.
Update on Opioid Litigation
Last year, Teva reached a nationwide settlement to resolve thousands of its opioid-related litigation. However, for the settlement to be finalized, the required number of states and local governments needed to agree to deal terms. Teva has already settled with or confirmed participation from 49 of the 50 states. The sign-on process for the states’ subdivisions is going well, Teva is confident that it will get similar support from the states’ subdivisions.
With the level of broad support from states and subdivisions, it can now move forward with the nationwide settlement and is hoping to make the first settlement payment in the second half of 2023.
Our Take
Teva’s first-quarter results were mixed as it missed estimates for earnings while beating the same for sales. Teva witnessed decent sales growth across all regions. Sales of relatively newer drugs, Ajovy and Austedo rose 10% and 35%, respectively across all regions on a constant currency basis. However, Austedo sales were much lower than expected. Also, Teva’s gross margins were quite weak in the quarter.
Teva’s shares were down 8.2% in response to the mixed results and weak margin performance. In the past year, shares of Teva Pharmaceuticals have risen 13.2% compared with the industry’s increase of 15.6%.
Image Source: Zacks Investment Research
But Teva expects margins to improve in the coming quarters as its portfolio mix shifts toward newer drugs, Ajovy, Austedo and Uzedy and lower costs due to supply improvements and easing of some elements of inflationary pressure, including on the cost of energy and freight. The FDA approved Uzedy (risperidone) extended-release injectable suspension for treating schizophrenia in adults in April this year. This long-acting risperidone is expected to be launched in the United States in the coming weeks.
Teva is also saving costs and improving margins through the optimization of operations for efficiency while also lowering the debt on its balance sheet.
Zacks Rank & Stocks to Consider
Teva currently carries a Zacks Rank #3 (Hold).
Teva Pharmaceutical Industries Ltd. Price, Consensus and EPS Surprise
Teva Pharmaceutical Industries Ltd. price-consensus-eps-surprise-chart | Teva Pharmaceutical Industries Ltd. Quote
Some better-ranked stocks in the biotech sector are Ocuphire Pharma (OCUP - Free Report) , Allogene Therapeutics (ALLO - Free Report) and Arcus Biosciences (RCUS - Free Report) . While Ocuphire Pharma sports a Zacks Rank #1 (Strong Buy), Allogene Therapeutics and Arcus Biosciences both have a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Loss per share estimates for Ocuphire Pharma have narrowed from 29 cents to 24 cents for 2023 and from 86 cents to 81 cents for 2024 in the past 60 days. Shares of OCUP have surged 233.7% in the past year. Earnings of Ocuphire beat estimates in three of the last four quarters and missed the mark in one, the average surprise being 23.85%.
Loss per share estimates for Allogene have narrowed from $2.56 to $2.31 for 2023 and from $2.53 per share to $2.20 per share for 2024 in the past 60 days. Shares of ALLO have declined 6.2% in the past year. Earnings of Allogene beat estimates in three of the last four quarters, the average surprise being 5.08%
Loss per share estimates for Arcus Biosciences have narrowed from $4.52 to $4.42 for 2023 and from $3.51 to $3.33 for 2024 in the past 60 days. Shares of RCUS have risen 9.2% in the past year. Earnings of Arcus Biosciences beat estimates in three of the last four quarters and missed in one, the average surprise being 4.38%.