TEVA Stock Up on Q4 Earnings Beat, Sales Miss Estimates
Teva Pharmaceutical Industries Limited TEVA reported fourth-quarter 2021 earnings of 77 cents per share, which beat the Zacks Consensus Estimate of 74 cents. Earnings rose 13.2% year over year due to higher profit margins and a lower tax rate.
Revenues for the fourth quarter came in at $4.1 billion, which missed the consensus estimate of $4.28 billion. Total revenues declined 8%, both on a reported and constant-currency basis,due to lower revenues in the North America segment. Revenues were also affected by the impact of the COVID-19 pandemic.
Shares were up 8.4% on Feb 9. Teva’s share price declined 20.4% for the trailing 12 months compared with the industry’s 34.9% decline.
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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 $2 billion, down 13% year over year due to lower sales of Copaxone and generic products. The segment has seen lower demand for some products due to reduced physician and hospital activity amid the COVID-19 pandemic. Yet, demand for some products in North America related to the treatment of COVID-19 and its symptoms marked an increase.
In the United States, sales declined 14% from the prior-year quarter to $1.88 billion.
Copaxone posted sales of $129 million in North America, down 39% year over year due to generic erosion in the United States.
Combined sales of Bendeka and Treanda declined 9% from the year-ago quarter to $93 million. Sales of Bendeka and Treanda were hurt by competition from Eagle Pharmaceuticals’ EGRX bendamustine solution called Belrapzo, which was launched in June 2019.
We note that Eagle Pharmaceuticals hasreceived 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. During the nine months ended September 2021, Eagle Pharmaceuticals recorded net revenues of $18.2 million from Belrapzo sales.
ProAir sales declined 40% from the prior-year period to $40 million. Austedo — approved to treat chorea associated with Huntington’s disease and tardive dyskinesia — recorded sales of $282 million in North America, up 52% year over year due to volume growth as well as an increase in the drug’s uptake in new patients.
Ajovy, Teva’s migraine treatment, recorded sales of $53 million for the quarter, up 49% year over year.
Generic product revenues fell 25% from the year-ago period to $905 million in the North America segment due to an increase in competition and lower volume.
Distribution revenues, generated by Anda, rose 11% year over year for the quarter to $355 million due to higher demand.
The Europe segment recorded revenues of $1.27 billion, up 2% year over year on a reported basis and 4% in constant currency. Sales of generic and OTC products alongside Ajovy rose in the segment.
In the International Markets segment, sales fell 8% year over year to $527 million. In constant currency terms, sales declined 7% from a year ago. Sales continued to decline in Japan on account of Teva’s divestment of the majority of assets from the Japan-based business venture last February.
The Other segment (comprising the API manufacturing business and certain contract manufacturing services) recorded revenues of $302 million, down 12% year over year on a reported basis and down 11% in constant currency terms.
Margins Rise
Adjusted gross margin rose 380 basis points (bps) to 56.1% for the quarter due to improved profitability in Europe and International segments. Adjusted research & development expenses declined 9.8% year over year to $229 million due to a decline in pain and neuropsychiatry areas. Selling and marketing expenditure fell 4.3% from the year-ago level to $600 million. General and administrative expenses declined 21.8% from the prior-year level to $244 million. Adjusted operating income rose 9% year over year for the quarter to $1.25 billion due to higher profits from Europe and International segments.
2021 Results
For 2021, the company reported revenues of $15.88 billion, down 5% year over yearon a reported basis and 6% on a constant-currency basis. Revenues fell short of the guided range of $16.0-$16.4 billion.
Adjusted earnings were $2.58 per share, up 0.4% year over year. Although earnings were within the guided range of $2.50-2.70 per share, it beat the Zacks Consensus Estimate of $2.56.
2022 Guidance
Teva issued its financial guidance for 2022. TEVA expects revenues in the range of $15.6-$16.2 billion. The Zacks Consensus Estimate stands at $16.26 billion.
Teva did not provide any quarterly revenue guidance. During the earnings conference call, Teva’s chief financial officer (CFO) Eli Kalif said that it anticipates achieving 45% of the 2022 revenue guidance in the first half of the year and the remaining in the second half.
Earnings are expected in the range of $2.40-$2.60 per share. The Zacks Consensus Estimate for the same stands at $2.67 per share.
Adjusted operating income is expected in the range of $4.2-$4.5 billion.
Our Take
For the fourth quarter, Teva beat earnings estimates but missed on sales. New drugs, Austedo and Ajovy, have been significantly contributing to Teva’s revenue stream. We expect that they could emerge as significant drivers of long-term sales growth and offset the declining sales of Copaxone.
Teva continues its commitment to deleveraging outstanding debt. After the repayment of $4.01 billion debt during the year, total debt amounted to $23.04 billion on Dec 31, 2021.
The liability in opioid litigation remains a concern. Teva faces several lawsuits, which claim that it is one of the several companies whose opioid-based drugs are responsible for fueling the nationwide opioid epidemic.
On the earnings conference call, Teva’s CFO Eli Kalif also revealed that liability increased $600 million in the fourth quarter. While the company reached a settlement with the state of Texas this month regarding opioid-related claims, it expects to reach a nationwide settlement in the coming 12 months.
Teva Pharmaceutical Industries Ltd. Price
Teva Pharmaceutical Industries Ltd. price | Teva Pharmaceutical Industries Ltd. Quote
Zacks Rank & Stocks to Consider
Teva currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the drug/biotech sector include Pfizer PFE and Vertex Pharmaceuticals VRTX. While Pfizer sports a Zacks Rank #1 (Strong Buy), Vertex Pharmaceuticals currently carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pfizer’s earnings per share estimates for 2022 have increased from $5.70 to $6.62 in the past 30 days. The same for 2023 has risen from $4.77 to $4.84 in the past 30 days. Shares of Pfizer have risen 49.5% in the past year.
Earnings of Pfizer beat estimates in each of the last four quarters, delivering a surprise of 19.8%, on average.
Vertex Pharmaceuticals’ earnings per share estimates for 2022 have increased from $13.39 to $14.33 in the past 30 days. The same for 2023 has risen from $14.10 to $15.31 in the past 30 days. VRTX has risen 16% in the past year.
Earnings of Vertex Pharmaceuticals beat estimates in each of the last four quarters, delivering a surprise of 10%, on average.
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