Its shares increased by more than 30% after Teva Pharmaceutical Industries Limited (NYSE:TEVA) reported its second-quarter earnings.
The business exceeded forecasts and released an improved outlook. A $4.35 billion opioid settlement with states and Native American tribes was also made public by the firm. Markets prefer equities with no ambiguity surrounding them.
Teva (NYSE:TEVA) stock fluctuated between $7.00 and almost $12.00 over three years. The stock, which is currently trading at $9.29, is still below one analyst’s $19 price target that was set in April 2022.
Will the TEVA stock rise from this point and reward investors who have endured years of waiting?
Teva has increased so far due to five reasons.
1) Teva exceeds expectations in the second quarter
Teva (NYSE:TEVA) recorded non-GAAP earnings per share of 68 cents, exceeding projections by 12 cents. To $3.8 billion, revenue decreased by 2.6%. On a GAAP basis, the company’s EPS decreased by 21 cents.
Sales and marketing costs and general and administrative costs account for the majority of the variance between GAAP and non-GAAP income. For instance, greater litigation costs were included in the GAAP amount. The goodwill impairment accounts for $745 million of the $986 million in adjustments. $729 million was spent on legal settlements and loss provisions. The investment’s associated tax impact was $965 million.
2) Consistent generic sales revenue
Only 3% of Teva’s revenue came from generic products. Strong Revlimid sales in North America helped the unit. This Rituxan biosimilar is available. The impressive results indicate that Teva will maintain its large market share. Volumes of its generic and over-the-counter (“OTC“) drugs increased throughout Europe.
Teva’s company is growing in the post-pandemic environment. Volumes are settling in. Additionally, the UK launch of Teva’s copycat Lucentis will boost generic drug sales.
The global market for biosimilars will expand at a CAGR of 16.8% from 2022 to 2027. Teva should see a rise in market share during that period. This will lead to favorable revenue growth for Teva’s generic business unit.
3) Sales by Austedo and Ajovy
$204 million in Austedo sales were reported by Teva (NYSE:TEVA), an increase of 17% from the previous year. It issued 48,000 prescriptions, up from 38,000 the previous year and a 27% increase. Within two quarters, investors can anticipate a greater performance from the stock. Owning TEVA stock is justified by strong Australian revenue.
Sales of Ajovy are rising in the United States, and market share is rising in Europe.
TRx, or monthly normalized prescription market share, is 24% owned by Teva. It is the second most popular brand in Europe, with a volume market share of 30.3%. The reimbursable medicine should contribute significantly to performance in the upcoming quarters after going on sale in 24 European nations.
Teva’s Ajovy and Austedo revenue expectation is stable despite a decreased overall revenue outlook:
More significantly, Teva’s projected cash flow remains unchanged. The money will need to be used for debt repayment and opioid settlement payments.
4) Reduced Debt
The non-core operations of Teva (NYSE:TEVA) were eliminated during the past few years by CEO Kare Schultz. Strongly synergistic business units were kept. The business will raise its gross margins by integrating and optimizing them. In the upcoming year, this will assist the positive free cash flow (“FCF”) increase.
Teva’s FCF slowed down in 2020, picked up steam in 2021, and kept trending upward in 2022. The introduction of biosimilars and increased demand for Ajovy and Austedo will boost cash flow. By the end of 2027, Teva will lower its net debt-to-EBITDA ratio to under two times.
Companies with high debt levels face above-average risks in a climate where interest rates are tightening. The price of debt servicing is higher. Fortunately, Teva’s business strategy shows continued rise in free cash flow. Debt default is not very likely.
Teva disclosed a planned agreement with Native American tribes and U.S. states. The $4.25 billion settlement would be given to the states. $100 million would go to the tribes. Teva would make annual net cash payments of between $300 million and $400 million over a 13-year period
CEO Kare stated that the contract is subject to Teva and Allergan agreeing on any indemnification requirements. A division of AbbVie is Allergan (ABBV). Organon (OGN) and Viatris (VTRS) are more equivalent to Teva than AbbVie. However, Teva is still in trouble. It is still negotiating a deal with the state of New York.
The Main Point
Teva (NYSE:TEVA) typically has a few weeks of gains before losing steam. Is this time any different? Since 2019, the stock has been range-bound. However, the opioid settlement eliminates a significant negative perception that was harming share performance. The corporation was rewarded by the market for reporting a successful quarter. When it reports strong Ajovy and Austedo sales in the fourth quarter, it might do so once again.
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