Teva Pharmaceutical Industries Limited


TEVA

reported first-quarter 2022 adjusted earnings of 55 cents per share, which matched the Zacks Consensus Estimate. Earnings declined 12.7% year over year due to lower revenues.

Revenues for the first quarter came in at $3.66 billion, which missed the consensus estimate of $3.74 billion. Total revenues declined 8% on a reported and 5% on a constant-currency basis, due to lower revenues in the North America segment, partially offset by higher revenues in Europe and International Markets segments. Revenues were significantly affected by currency changes due to a stronger dollar as 50% of Teva’s revenues come from sales denominated in currency other than the U.S. dollar.

Teva’s share price has risen 7.4% this year so far against the

industry

’s 17.2% decline.

Image Source: Zacks Investment Research

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 $1.74 billion, down 13% year over year due to lower sales of Copaxone and generic products. In the United States, sales declined 12% from the prior-year quarter to $1.64 billion.

Copaxone posted sales of $86 million in North America, down 48% year over year due to generic erosion in the United States and lower market share due to increased competition.

Combined sales of Bendeka and Treanda declined 10% from the year-ago quarter to $82 million. Sales of Bendeka and Treanda were hurt due to the availability of alternative therapies and continued competitive pressure from

Eagle Pharmaceuticals

’

EGRX

bendamustine solution called Belrapzo.

Eagle Pharmaceuticals has received 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.

Austedo recorded sales of $154 million in North America, up 6% year over year due to volume growth. Historically, Austedo volumes have been low in the first quarter due to patient deductible resets. Management expects to see sequential growth in Austedo demand and volumes in the remaining quarters.

Ajovy, Teva’s migraine treatment, recorded sales of $36 million for the quarter, up 16% year over year.

Generic product revenues fell 15% from the year-ago period to $899 million in the North America segment due to an increase in competition and lower volumes (due to fewer generic launches in 2021). Moreover, generic sales in the first quarter of 2021 benefitted from Truvada and Atripla generics, which were missing in the first quarter of 2022.

In March, though Teva launched the first generic version of

Bristol-Myers’


BMY

multiple myeloma drug Revlimid, the impact of the generic launch was not as significant as Truvada and Atripla generics in the first quarter of 2021.

The generic version of Bristol-Myers’ Revlimid is approved for the treatment of multiple myeloma in combination with dexamethasone, certain myelodysplastic syndromes, and later-line mantle cell lymphoma.

Distribution revenues, generated by Anda, rose 18% year over year for the quarter to $342 million due to higher demand for COVID-related products.

The Europe segment recorded revenues of $1.16 billion, down 5% year over year on a reported basis due to currency headwinds. Sales rose 3% in constant currency driven by higher demand for generic and OTC products with the easing of COVID restrictions and higher sales of cough and cold products.

In the International Markets segment, sales were flat year over year at $492 million. In constant currency terms, sales rose 8% from a year ago due to higher sales in most markets, partially offset by lower sales in Japan. Sales declined in Japan on account of Teva’s divestment of the majority of assets from the Japan-based business venture in February 2021, regulatory price reductions and generic competition.

The Other segment (comprising the API manufacturing business and certain contract manufacturing services) recorded revenues of $275 million, down 5% year over year on a reported basis and flat in constant currency terms.

Margins Rise

Adjusted gross margin rose 40 basis points (bps) to 54.2% for the quarter. Adjusted research & development expenses declined 9.4% year over year to $221 million due to a decline in the neuroscience area, which offset higher costs related to biosimilar/generic pipeline candidate projects. Selling and marketing expenditure rose 0.6% from the year-ago level to $552 million. General and administrative expenses declined 9.4% from the prior-year level to $252 million. Adjusted operating income declined 6% year over year in the quarter to $1.01 billion due to lower profits in North America that was partially offset by higher profit in the Europe and International Markets segments.

2022 Guidance

Teva lowered its revenue guidance from a range of $15.6 billion-$16.2 billion to $15.4 billion – $16 billion due to currency headwinds and lower Copaxone sales.

Sales of Copaxone in all regions are now expected to be approximately $750 million lower than approximately $850 million expected earlier due to increased competition and currency headwinds.

Teva expects Ajovy revenues of approximately $400 million (maintained) while Austedo revenues are expected to be approximately $1.0 billion (maintained).

Adjusted earnings guidance was maintained the range of $2.40-$2.60 per share. Adjusted operating income is still expected in the range of $4.2-$4.5 billion. Adjusted operating margin is expected to be above 27% in 2022. It is expected to increase to 28% in 2023 as it believes its cost-savings efforts will help mitigate the global macroeconomic headwinds, including inflation and higher cost of labor.

Sales and earnings growth was lowest in the first quarter with a gradual pick-up expected in the second quarter. Approximately 45% of 2022 revenues is expected to be generated in the first half of the year and approximately 55% in the second half.

Adjusted tax rate is expected to be in the range of 18% to 19%. Free cash flow is expected to be in the range of $1.9-$2.2 billion.

Our Take

For the first quarter, Teva met estimates for earnings but missed the same for sales. Teva is seeing continued growth of Austedo prescriptions and market share growth for key growth driver, Ajovy. While revenues are improving in some countries like Europe, following the easing of COVID-19 restrictions, a strong foreign exchange headwind is hurting the top line

Teva continues its commitment to deleveraging outstanding debt. The liability in opioid litigation remains a concern. Teva faces several lawsuits from state and local governments, which claim that it is one of the several companies whose opioid-based drugs are responsible for fueling the nationwide opioid epidemic.

Teva continues to resolve opioid-related litigations with recent settlements in Florida and Rhode Island in March The company expects to reach a nationwide settlement for all states before the end of 2022 and believes it would have to pay around $2.6 billion to settle the lawsuits.

Zacks Rank & Stocks to Consider

Teva currently has a Zacks Rank #4 (Sell).

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