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Will Cost Control Help Teva (TEVA) Beat on Q2 Earnings?

Zacks Equity Research

We expect Teva Pharmaceutical Industries Limited TEVA to beat estimates when it reports second-quarter 2019 results on Aug 7, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 3.45%.

Teva’s earnings surpassed expectations in three the last four reported quarters, with the average positive surprise being 9.54%.

Teva Pharmaceutical Industries Ltd. Price and Consensus

 

Teva Pharmaceutical Industries Ltd. Price and Consensus
Teva Pharmaceutical Industries Ltd. Price and Consensus

Teva Pharmaceutical Industries Ltd. price-consensus-chart | Teva Pharmaceutical Industries Ltd. Quote

 

This generic drugmaker’s shares have declined 49% this year so far compared with the industry’s decline of 4.7%.

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Let’s see how things are shaping up for this announcement.

Factors to Consider

Teva reports under three segments based on three regions — North America (United States and Canada), Europe and International Markets.

In the second quarter, pricing erosion in the U.S. generics market, continued sales erosion of Copaxone due to introduction of generics and lower sales of other branded drugs Bendeka, Treanda, ProAir and Qvar will continue to hurt North America segment sales. Particularly, ProAir sales are likely to be hurt by the launch of a generic version of the drug. In Europe as well as International Markets segments, loss of revenues from divestitures and discontinued business activities is likely to hurt sales. The decline in sales of generic medicines and Copaxone is expected to continue, which can offset the positive impact of generic launches.

Additional competition for Teva’s largest product, Concerta authorized generic, will also hurt generics sales in the quarter. However, on the first-quarter conference call, the company had noted signs of stabilization in the US generics and European generics business helped by launches and strong key products. Revenues lost due to price erosion in the U.S generics business and portfolio optimization were partially offset by additional sales from the launch of generic products. We can expect a similar trend in the to-be-reported quarter.

Generic launches in the second quarter include that of Gilead’s GILD Letairis, Roche’s Tarceva and Allergan’s AGN Delzicol in May. In March/April, Teva launched generic versions of VESIcare (solifenacin succinate) tablets and AndroGel (testosterone gel) and Exjade tablets and an authorized generic version of Flector patch, a nonsteroidal anti-inflammatory medicine to treat acute pain.

Its new drugs, Austedo and Ajovy should contribute to the top line. Importantly, Ajovy was approved in the EU in April, which should add to sales in the second quarter. Investors will also be interested to know how management plans to capture market share for Ajovy against Amgen and Lilly’s CGRP’s, which were also launched last year.

Research and development costs could be lower due to pipeline optimization, concluded phase III studies and resultant workforce reductions. Also, cost cutting and re-structuring activities should result in lower selling and marketing expenditure.

In April, Teva announced the discontinuation of a late-stage study evaluating Ajovy for episodic cluster headache. Investors are expected to question management on the issue on the second-quarter conference call. In June 2018, Teva had stopped a study on the same candidate for chronic cluster headache.

Earnings Whispers

Our proven model shows that Teva is likely to beat estimates this quarter because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for a likely positive surprise.

Earnings ESP: Its Earnings ESP is +1.07%. The Zacks Consensus Estimate stands 58 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Teva has a Zacks Rank #3. The combination of Teva’s Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat in the upcoming release.

Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Another Stock to Consider

Here is another large biotech stock that has the right combination of elements to beat on earnings this time around.

Regeneron Pharmaceuticals REGN has an Earnings ESP of +3.64% and a Zacks Rank #3. The company is scheduled to release results on Aug 6.

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