RHHBF - What To Expect From Teva Pharmaceutical In 2023 With A New CEO

Summary

• Anda's revenue generated $450 million for the company in the last three months of 2022, up $95 million from Q4 2022, driven by substantially increased demand for the company's services.
• Teva's European segment profit was $1,496 million in 2022, slightly up year-over-year, even though Copaxone sales declined.
• 2023 could be the year that Teva begins to regain its leading position in therapeutic areas such as CNS and respiratory diseases.

On February 8, 2023, the leading Israeli pharmaceutical company released its financial report for the 4th quarter of 2022 and all of 2022, which showed that the company's management had significantly improved Teva Pharmaceutical's ( TEVA ) financial position even during a period of macroeconomic instability in the world. Despite the continued downward trend in North American generic sales, the company's total revenue was $3,884 million in Q4 2022, up $289 million quarter-on-quarter, driven by increased demand for Ajovy and Austedo. Under the leadership of Kåre Schultz, the margins of many of the business segments improved, helping to beat the expectations of Wall Street analysts, who have conservatively valued Teva Pharmaceutical stock since the loss of Copaxone's exclusivity.

This article will provide an analysis of two key segments that collectively generated 80.6% of the company's total revenue and played a significant role in the development of Teva's business, which was once ranked on par with such mastodons of the pharmaceutical industry as Pfizer ( PFE ) and Merck ( MRK ).

Teva Pharmaceutical's North America Segment

Drug sales in the United States and Canada generated $2,002 million for Teva Pharmaceutical in Q4 2022, up 10.7% from Q3 2022.

QoQ's revenue growth was driven primarily by two flagship patent medicines, Ajovy and Austedo. Aggregate sales amounted to $419 million, up 25.1% year-on-year, thanks to their high efficacy and favorable safety profile shown in clinical studies, which ultimately has a positive effect on the growth of prescriptions for them. In 2022, Teva Pharmaceutical made massive progress in expanding the company's generics portfolio by launching more than twenty generic versions of branded drugs. For example, the company has successfully launched sales of generic versions of such blockbusters as Bristol-Myers Squibb's ( BMY ) Revlimid, GSK's ( GSK ) Advair, AbbVie's ( ABBV ) Synthroid, and Roche Holding's ( RHHBY ) ( RHHBF ) Esbriet.

In my estimation, the company, after reaching a nationwide settlement on the opioid lawsuits, stepped up its efforts to find products with controversial patents. One such target was Axsome Therapeutics' ( AXSM ) Auvelity, which was approved for treating a major depressive disorder in 2022 but is showing quarter-on-quarter solid sales growth. Teva claims that several patents listed in the FDA's Orange Book that expire in 2040 are invalid. If the Israeli company wins over Axsome Therapeutics, Teva will likely have the right to sell the generic version of Auvelity as early as 2034.

In addition, Anda, a business specializing in distributing medicines from various third-party pharmaceutical companies to pharmacy chains and hospitals in the United States, significantly improved Teva's revenue. Anda's revenue generated $450 million for the company in the last three months of 2022, up $95 million from Q4 2022, driven by substantially increased demand for the company's services.

However, Teva's slight $1 million year-on-year decline in revenue was due to lower revenues from three medicines, namely Copaxone, Treanda, and Bendeka, which are commercialized in partnership with Eagle Pharmaceuticals ( EGRX ). For example, sales of Bendeka and Treanda (bendamustine hydrochloride) totaled $75 million in Q4 2022, down $8 million from a year earlier. The main reasons for the decline in sales were alternative therapies and intense competition. As a result, at the end of 2022, a generic version of Treanda, whose manufacturers are Accord, appeared on the US market. Moreover, many pharmaceutical companies, including giants of the generics industry such as Viatris ( VTRS ), Glenmark Pharmaceuticals, and Dr. Reddy's Laboratories ( RDY ), received tentative approval. As a result, from 2023, increased pressure on sales of the Teva product is expected.

However, due to the insignificant share of bendamustine hydrochloride in Teva's total revenue, which is less than 2%, the decrease in revenue from this drug will not make a significant negative contribution to the company's financial position.

Teva Pharmaceutical's Europe Segment

Europe was the second most crucial region for Teva Pharmaceutical, bringing in $1,129 million in Q4 2022, up 5.6% from the same period in 2021, thanks to new drug launches and increased demand for cold and cough medicines in the current winter period, which increased the number of respiratory diseases.

At the same time, the company showed an 11% year-on-year decline in drug sales, mainly due to continued high competition from generic versions of Copaxone and the depreciation of the pound sterling, Swiss franc, and euro against the US dollar. Teva notes in its Annual Report that, in 2022, hedging effects and exchange rate fluctuations had a negative impact of $550 million on the company's revenue relative to 2021. Taking into account my assessment of the geopolitical and macroeconomic situation in Europe, the euro will continue to experience weakness against the US dollar in 2023 due to the continued concerns of investors regarding the consequences of Russia's aggressive actions against Ukraine, which is spending significant resources of many European countries.

Teva's European segment profit was $1,496 million in 2022, slightly up year-over-year, even though Copaxone sales declined. The company's management continues to do a fantastic job of improving the margins of the business year after year by lowering drug production costs and expanding marketing tools to educate patients and physicians about the benefits of Ajovy in combating migraine.

Conclusion

In 2022, Teva Pharmaceutical achieved impressive results in reaching a nationwide settlement to resolve opioids litigation, expanded its generic portfolio in the US and Europe, and maintained strong sales growth for the company's two key patent medicines, Ajovy and Austedo, generating $1,340 million for the company, up $225 million more than the previous year.

Despite the depreciation of the euro, the currencies of developing countries, and increased competition among companies in the healthcare sector, the company's cash flow shows a significant increase from quarter to quarter. This factor will allow Richard Francis, who recently became CEO of Teva, to pursue a more active R&D policy to expand the company's product candidates portfolio and reduce the risks associated with debt servicing. I estimate that the company will be able to redeem the senior bonds for a total of $2,088 million by mid-2023 without any difficulty.

2023 could be the year that Teva begins to regain its leading position in therapeutic areas such as CNS and respiratory diseases. One of the short-term catalysts for the company's share price could be a possible FDA approval of UZEDY (risperidone), a promising long-acting schizophrenia drug candidate that could generate $700-900 million in revenue for Teva Pharmaceutical if it hits peak sales. In addition, several biosimilars are expected to begin commercialization in the next three years, one of which is the Humira biosimilar, which brought AbbVie about $21.2 billion in 2022.

In conclusion, I would like to note that after the resolution of the opioid crisis, then in 2023, Teva management will be able to focus on the goal of returning the company to the Olympus of the pharmaceutical industry. The currently heavily undervalued company may gradually regain a trend of outperforming Wall Street analysts' expectations as it did before 2016, allowing it to beat the S&P 500 ( SPY ) for years to come.

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