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Teva (TEVA) Stock Poised to Record Big Gains in 2019?

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Shares of Teva Pharmaceutical Industries Limited (TEVA - Free Report) have picked up pace this year so far after declining sharply in 2017. Though the stock has declined 2.7% this year, it has outperformed its industry’s decline of 14%.

 

 

Last year, Teva’s stock declined a massive 54.6%, underperforming the industry’s decline of 26.3%.

Teva is one of the world’s largest generic drug makers and carries a Zacks Rank #2 (Buy).It appears on track to come up with a good performance in 2019.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

What’s Going in Teva’s Favor?

The Israel-based generic drug maker has been facing significant challenges. This includes accelerated generic competition for its blockbuster multiple sclerosis drug, Copaxone, new competition for branded products, pricing erosion in the U.S. generics business and a massive debt load of approximately $30 billion. 

Mylan’s (MYL - Free Report) earlier-than-expected launch of the first generic version of the 40-mg strength of Copaxone in October last year was a major setback for Teva. In the same month, Mylan also launched the second generic version of the 20 mg formulation of Copaxone. The first generic version of the 20 mg formulation has been marketed by Momenta Pharmaceuticals, Inc. (MNTA - Free Report) and Sandoz — Novartis’ (NVS generic arm — since 2015.

With the entry of the generic version of the 40 mg formulation and the entry of a second generic version of the 20 mg formulation, there has been rapid erosion in sales of Copaxone. Moreover, a second generic version of the 40 mg formulation (Glatopa) was launched by Sandoz in February this year, much earlier than its scheduled launch in April. A couple of other companies are also looking to get approval for their generic versions of the 40-mg formulation and generic competition is expected to increase in 2019.

However, Teva has undertaken some strategic and restructuring initiatives to revive growth.

The company divested some non-core assets last year (mainly in the Women’s Health business) to cut its significant debt load. It also has a new organizational structure in place, is closing plants, cutting down its generics portfolio, eliminating low-value R&D projects, and is reducing global workforce to revive growth. Teva is progressing well on these re-structuring activities and expects to save almost $3 billion by the end of 2019 from these initiatives, which should boost the company’s profits next year.

Its financial position also seems more stable than before as it is regularly paying down debt. Regular payment of debt is lowering its interest expense, which should again pull up its profits.

On the last earnings conference call held in November, Teva slightly raised the lower end of its full-year sales guidance. However, it significantly raised its earnings guidance, following solid third-quarter results and accelerated cost savings. The company also upped its free cash flow guidance. A guidance raise always suggests management’s confidence in the company’s potential to do well.

Most importantly, on the last earnings conference call, Teva management confirmedsigns of stabilization in U.S. generic drug pricing. The company also said that the rate of sales erosion in the North American Generic business slowed significantly in the third quarter from second-quarter levels due to optimization of its generics product portfolio as well as product launches.

Teva gained FDA approval for Truxima (CT-P10), its biosimilar to Roche’s Rituxan and launched limited doses of its generic version of Mylan’s EpiPen and generic version of Lilly’s blockbuster products Cialis in September-November 2018. Next year, Teva will launch the generic version of lower dose EpiPen Jr (0.15mg) and bring in additional supply of 0.3 mg EpiPen generics. All these new generic/biosimilar launches and slowing sales erosion in the generics segment can improve Teva’s topline in the Generics segment in 2019.

Its newest drugs, Austedo and Ajovy, could emerge as significant contributors to the branded drugs portfolio in 2019 and thereafter.

Bottom-Line

Overall, though Teva’s woes like lower Copaxone sales and pricing erosion in the U.S. generics business will continue in 2019, revenues from new branded and generic launches, accelerated cost savings and improving business fundamentals should provide top and bottom-line support.

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