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Teva (TEVA) Q1 Earnings Top, Coronavirus-Led Buying Aids Sales

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Teva Pharmaceutical Industries Limited (TEVA - Free Report) reported first-quarter 2020 earnings of 76 cents per share, which significantly beat the consensus estimate of 59 cents. Earnings per share rose 26.7% year over year due to higher operating profit.

Revenues of the generic drugmaker came in at $4.36 billion, which beat the consensus estimate of $4.15 billion. Sales rose 5% on both reported and constant currency terms year over year, mainly driven by double-digit sales growth in Europe.

Sales in the quarter benefited from greater demand in several markets for generic and OTC products and respiratory products amid the coronavirus-related lockdown.

Segment Discussion

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

North America segment sales were $2.08 billion, up 2% year over year as higher sales of Austedo and Anda (distribution revenues) offset the impact of lower sales of branded drugs, Copaxone, Qvar and Bendeka/Treanda and generic drugs. In the United States, sales rose 2% to $1.94 billion.

Copaxone posted sales of $198 million in North America, down 5% year over year due to generic erosion.

Combined sales of Bendeka and Treanda declined 14% to $105 million due to lower volumes. The launch of a competing bendamustine solution called Belrapzo by Eagle Pharmaceuticals (EGRX - Free Report) in June 2019 hurt volumes of Bendeka/Treanda.

ProAir sales rose 1% to $59 million. Qvar sales were $45 million in the quarter, down 29% due to lower volume and increased competition.

Austedo, a new drug approved to treat chorea associated with Huntington’s disease and tardive dyskinesia, recorded sales of $122 million in the quarter in North America compared with $136 million in the previous quarter. Teva said that sales of Austedo fluctuate from quarter to quarter. Fourth-quarter 2019 sales had benefited from particularly strong demand, which resulted in a sequential decline in first-quarter 2020. Sales are expected to grow in the rest of the year.

Ajovy, Teva’s new migraine treatment, recorded sales of $29 million in the quarter compared with$25 million in the previous quarter.

Ajovy’s weekly total prescription count in the United States has remained flat for many quarters. Management attributed the lower market share to preference of patients for auto injectors while Ajovy is available as a subcutaneous injection. Importantly, Teva’s auto injector device for Ajovy is now approved in the United States and EU and was launched in the United States in late April, which could re-ignite growth in 2020.

Generic products revenues declined 1% to $952 million in the North America segment as higher sales from the launch of generic products including Truxima (Teva’sbiosimilar to Roche’s [(RHHBY - Free Report) ] Rituxan) and ProAir authorized generic were offset by price erosion and lower royalty income. Another biosimilar, Herzuma (biosimilar to Roche’s Herceptin) was launched in March.

Distribution revenues, generated by Anda, acquired from Allergan in 2016, rose 13% in the quarter to $426 million as COVID-19 pandemic resulted in higher volumes in the quarter.

The Europe segment recorded revenues of $1.40 billion, up 11% (up 13% in constant currency terms) year over year, gaining from COVID-19 related patient stockpiling of generic and OTC medicines and continued growth in generics and generic product launch. However, these were partially offset by lower sales of Copaxone and oncology products due to generic competition. However sales of branded respiratory products rose in Europe due to COVID-19 related stockpiling.

In the International Markets segment, sales rose 8% (up 5% in constant currency terms) to $565 million as higher sales in Latin America, Asia-Pacific, Ukraine and Russia were partially offset by lower sales in Japan.

The Other segment (API manufacturing business and certain contract manufacturing services) recorded revenues of $307 million, down 2% year over year, in constant currency terms.

Costs Decline, Margins Rise

Adjusted gross margin rose 130 basis points (bps) to 53.1% in the quarter. Adjusted research & development expenses declined 13.3% year over year to $221 million due to pipeline optimization. Selling and marketing (S&M) expenditure declined 5.3% from the year-ago level to $570 million due to cost-cutting activities and lower marketing and travel costs due to COVID-19 related travel restrictions. General and administrative (G&A) expenses rose 3.6% year over year to $290 million. Adjusted operating income rose 22% in the quarter to $1.24 billion due to higher profits in all three segments, some economic hedging activities and lower S&M costs.

2020 Guidance

Teva maintained its previously issued guidance for 2020. It expects revenues to be in the range of $16.6-$17.0 billion. Earnings are expected in the band of $2.30-2.55 per share.

In 2020, Teva expects global Copaxone sales of approximately $1.2 billion, $300 million lower than in 2019. While Austedo is expected to record sales of $650 million, Ajovy is expected to bring in $250 million in global sales.

Free cash flow is expected in the range of $1.8-$2.2 billion.

Our Take

Teva’s first-quarter results were strong as it beat estimates for both earnings and sales. Despite the solid first-quarter performance, the company maintained its outlook for the year as it expects a significant impact from the COVID-19 in the second quarter, which may offset the first-quarter outperformance. Its stock was up more than 10% on Thursday. Teva share price has risen 17.9% this year so far against the industry’s decrease of 3.7%.

 

 

 

Teva faces challenges in the form of generic erosion of Copaxone, new competition for branded products, pricing erosion in the U.S. generics business, currency headwinds and a massive debt load. Nonetheless, its two-year restructuring plan was successful, leading to $3 billion in cost savings by 2019. Its newest drugs Austedo and Ajovy could emerge as significant drivers of long-term sales growth. With encouraging progress on restructuring activities, stabilization in U.S. and European generics business and improvement in financials, we believe the company may return to growth in 2020.

Teva, however, is involved in an opioid litigation and faces DOJ investigations on allocations of price fixing, which are overhangs on its stock. Teva faces several lawsuits, which claim that it is one of the several companies whose opioid-based drugs were responsible for fueling nationwide opioid epidemic.

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

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