EUR 850.00 For Business Accounts Only

Morningstar | TEVA Updated Forecasts and Estimates from 07 Nov 2018

Teva posted encouraging third-quarter results, and we may slightly boost our fair value estimate as we incorporate a few changes into our model. Teva’s recent performance has exceeded our expectations, including more-resilient Copaxone sales and early benefits from the company’s $3 billion cost-reduction efforts, which have so far shaved about $1.8 billion off expenses (including a currency headwind). Regardless, we still think the outlook for the company remains challenging, given ongoing pressure on Copaxone, an unstable generics market, and the company’s high debt load. Additionally, we’re skeptical that cost cuts can go much deeper than the $3 billion target. Therefore, we’re leaving our no-moat rating in place.

Copaxone continues to outperform our expectations, while Austedo and recently launched chronic migraine drug Ajovy should bolster branded segment performance. While Mylan’s recent aggressive price cut for its generic Copaxone did sap some market share from Teva, Copaxone has still held on to 77% share of the less frequently injected 40 milligram portion of the market and should end the year with over $1.6 billion in North American sales, by our estimate. With North America Copaxone sales down 43% year over year, we still anticipate the tough pricing environment for Copaxone will remain a sizable hurdle for 2019. Austedo sales of $62 million in the quarter also slightly surpassed our expectations, thanks largely to tardive dyskinesia patient prescriptions. Additionally, the recent launch of Ajovy appears to be progressing well despite some concerns over the drug’s formulary coverage and other similar CGRP competitors entering the arena. We remain fairly optimistic about Ajovy given the drug’s less-frequent dosing and the large unmet medical need in the migraine market.

Offsetting positive news in the branded operations, Teva’s generics business continues to fall short of our forecast, but management noted some pricing stabilization in the market that suggests a more predictable future for this business. North American generic sales were down 25% in the quarter, which is also the seventh consecutive quarter of sequential sales decline in this segment. International generic sales fared better, but continued to decline from last year as well. While we expect less pressure in 2019, we still imagine the generics industry will remain a tough competitive environment.