Teva Profit Beats Expectations as Branded Drugs Lift the Outlook

Teva beat third-quarter profit expectations on Tuesday and raised its full-year outlook, as three branded drugs grew fast enough to offset a sharp generics decline.

Teva makes generic medicines, the copycat versions of branded drugs, alongside a growing set of its own branded treatments. The third quarter, ended September 30, tested whether the branded side could outgrow the generics decline. On the company's own numbers, it could, on profit if not yet on total sales.

Adjusted profit beat expectations

Adjusted earnings were $0.86 a share, the company reported. That measure, called non-GAAP, excludes one-time items. It rose from $0.78 a share a year earlier.

Analysts expected $0.72 a share, according to LSEG I/B/E/S data reported by Reuters. The beat was about 19 percent, a TickerGrove calculation. Non-GAAP net income was $1.01 billion, up from $910 million.

Revenue was $4.4 billion, down two percent from a year earlier. Analysts expected $4.22 billion on the same Reuters frame. The revenue beat was about four percent, also a TickerGrove calculation.

Reported profit told a different story. Net income attributable to Teva was $233 million, or $0.20 a share. A year earlier it was $433 million, or $0.37 a share.

The gap between the two profit measures is itemized in the release. Non-GAAP adjustments totaled $780 million in the quarter. They included $228 million of asset impairments and $201 million of legal settlements. Financial expenses also included a $224 million loss on early debt repayment.

“Our strong third-quarter performance is another clear demonstration of Pivot to Growth in action and how far Teva has come,” president and chief executive Richard Francis said. Pivot to Growth is the company's name for its branded-led strategy.

Three branded drugs drove the mix

Austedo, Ajovy and Uzedy together brought in about $1.1 billion. The trio grew 33 percent in local currency terms. Local currency means growth measured without exchange-rate moves.

Austedo, a treatment for movement disorders, was the largest at $751 million globally. Its sales rose 21 percent in local currency. United States sales were $727 million of that total.

Ajovy, a migraine treatment, reached $269 million globally, up 61 percent. Uzedy, a long-acting schizophrenia injection, reached $85 million. Its sales nearly doubled, rising 96 percent.

The mix shift lifted margins. Gross margin, gross profit as a share of sales, was 55.5 percent. A year earlier it was 51.4 percent. The non-GAAP gross margin reached 58.7 percent.

Generics fell as Revlimid competition bit

Generic products revenue in the United States fell 39 percent to $718 million. The release ties the drop mainly to lenalidomide capsules. Those are a generic version of Revlimid, a cancer medicine.

Global generics revenue fell 16 percent in local currency terms. Recently launched generics and biosimilars partly offset the decline. Biosimilars are near-copies of complex biologic drugs.

United States segment revenue overall fell 11 percent to $1.87 billion. Branded growth inside the segment cushioned the generics drop. It did not erase it.

Operating income fell to $714 million from $882 million a year earlier. The release cites higher impairments and legal settlements. Non-GAAP operating income rose to $1.39 billion from $1.29 billion.

Adjusted EBITDA, a cash-earnings measure the company reports, was $1.5 billion. That was up seven percent from $1.39 billion a year earlier.

Cash flow generated from operations was $241 million, down from $369 million. Free cash flow was $495 million. The release attributes the decline mainly to sales and collections timing.

Guidance raised for the full year

For the full year, Teva announced revenue guidance of $16.7 billion to $17.0 billion. It announced non-GAAP earnings guidance of $1.92 to $2.11 a share. These are company forecasts announced today, not reported results.

Reuters described the revenue range as a slight raise. The release itself does not state the prior total revenue range. The size of that raise therefore cannot be measured from the release alone.

The product outlooks carry their priors in the release. Austedo is now expected at $2.55 billion to $2.65 billion. The prior range was $2.45 billion to $2.60 billion.

Ajovy is now expected at $930 million to $960 million, up from $850 million to $870 million. Uzedy is expected at $290 million to $310 million. Its prior range was $270 million to $290 million.

Teva also said biosimilars revenue should exceed $800 million in 2026. That would reach its original 2027 objective a year early. Weltruza, its new schizophrenia injection, is expected in United States pharmacies in the coming weeks.

What remains unknown

What remains unknown starts with the prior total guidance. The release gives prior ranges for the three products only. Readers cannot size the total revenue raise from this release.

It is also unknown how much further lenalidomide revenue falls. The release names the competition behind the decline. It does not give a floor for the product or a timetable for stabilization.

Weltruza's early uptake is unknown as well. The release gives a peak sales view for the schizophrenia franchise. It does not give a first-year sales expectation for the new drug.

What to watch next

What to watch next is the fourth quarter against the announced full-year ranges. Revenue of $16.7 billion to $17.0 billion is the first test. Non-GAAP earnings of $1.92 to $2.11 a share is the second.

Watch the three product ranges against their raised outlooks. Austedo carries the largest dollar test. Watch, too, whether United States generics revenue stabilizes after this quarter's 39 percent drop.

Biosimilars carry their own test: revenue above $800 million for the year. Weltruza's first weeks on pharmacy shelves will show whether the schizophrenia franchise is broadening as planned.