Teva (TEVA) Beats On Q2 Earnings & Revenues, Stock Gains

Teva Pharmaceutical Industries Ltd.’s (NYSE:TEVA) shares were up 3.5% with the company announcing better-than-expected second quarter 2016 results. While earnings came in at $1.25 per share, well above the Zacks Consensus Estimate of $1.18, revenues were $5 billion, surpassing the Zacks Consensus Estimate of $4.8 billion.

While revenues were up 1% from the year-ago period, earnings declined 12.6% from the year-ago period. Currency fluctuations had a negative impact of $141 million on total revenues.

Quarter in Detail

Generic segment revenues declined 7% to $2.3 billion. Revenues from the U.S. generics business declined 33% to $892 million reflecting lower sales of the generic versions of Abilify, Nexium and Pulmicort due to loss of exclusivity.

European generic revenues continued to decline with sales coming in at $660 million, down 1% from the year-ago period.

Specialty medicines revenues grew 9% from the year-ago period to $2.3 billion reflecting higher sales of CNS (up 5% to $1.4 billion) and respiratory products (up 24% to $313 million). Oncology product sales grew 14% to $334 million while Azilect increased 3% to $108 million.

Worldwide Copaxone revenues grew 8% to $1.1 billion. While sales in the U.S. increased 10% to $955 million, ex-U.S. sales grew 1% to $186 million reflecting higher volumes in certain European and ROW markets. U.S. sales benefited from a 7.9% price increase taken in Jan 2016 as well as a reduction of sales in the Medicaid channel, resulting in both lower rebates in the current quarter and a positive change in the estimate for rebates in prior quarters.

The 40 mg thrice-weekly (3TW - three times a week) formulation accounted for 82% of total Copaxone scrips in the U.S. at the end of the reported quarter. We note that Teva is facing patent challenges for the 40 mg formulation – a trial is scheduled to commence this September with a decision expected in the first quarter of 2017.

In Jun 2015, Sandoz had launched Glatopa, its once-daily generic version of Copaxone 20 mg.

The women’s health business recorded revenues of $117 million, up 6%.

API revenues increased 13% to $207 million.

Research & Development expense increased 3.6% from the year-ago period to $370 million. Meanwhile, Selling and Marketing (S&M) expenditures grew 6.1% from the year-ago period to $898 million.

2016 Outlook Maintained

The company expects earnings of $5.20-5.40 per share on revenues $22.0-22.5 billion. The Zacks Consensus Estimate for 2016 revenue and earnings are $22.29 billion and $5.16 per share, respectively.

Earlier this week, Teva completed its acquisition of Allergan (NYSE:AGN_pa) plc’s (NYSE:AGN) generics business (Actavis Generics). The company also announced a deal to acquire Allergan’s Anda Inc., the 4th largest distributor of generic pharmaceuticals in the U.S., for $500 million. The Anda deal is slated to close in the second half of the year.

Meanwhile, the company said that it expects to achieve $1.4 billion in operational and tax synergies from the Actavis Generics acquisition by the end of 2019. The deal is expected to boost 2017 EPS by 14% and 2019 EPS by 19%.

Our Take

Teva’s second quarter results were strong with the company beating on earnings and revenues. Strength in the specialty business helped offset weakness in the generics segment that didn’t see any major launches during the quarter. 2016 is a transition year for Teva as it works on the integration of Actavis Generics and progresses with its branded pipeline. The Actavis Generics acquisition will help the company strengthen its position in key generic markets.

Teva has also earmarked $3 billion - $4 billion for potential deals in 2016. The company is also looking to strengthen its biosimilar pipeline.

The company has quite a few important regulatory and development updates lined up this year. Investor focus will remain on the outcome of the Copaxone 40 mg patent infringement litigation.

TEVA PHARM ADR Price

TEVA PHARM ADR Price | TEVA PHARM ADR Quote

Teva is a Zacks Rank #2 (Buy) stock. Some better-ranked stocks in the healthcare sector include Anika Therapeutics Inc. (NASDAQ:ANIK) and Geron Corporation (NASDAQ:GERN) – both are Zacks Rank #1 (Strong Buy) stocks.

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