Teva Earnings: Despite Mixed First Quarter Results Shares Rally on Good Readout for Olanzapine

No-moat Teva reported mixed first-quarter results. Total sales of $3.8 billion were up 4.3% year over year, but profitability lagged from higher operating expenses and impairment charges. That being said, the market reacted very favorably to this morning’s announcement of Teva’s long-acting once-monthly schizophrenia drug olanzapine, and the stock surged more than 15%. Today’s readout was on the efficacy portion of the Phase III trial, and it confirmed that the study met primary and secondary endpoints on all three doses against a placebo. But more important, there were no episodes of postinjection delirium/sedation syndrome, or PDSS, after administering about 80% of the target injection number. The data is not only encouraging, but also came in quicker than we had anticipated. Besides the positive readout, we think there are three reasons we think this might be positive for investors. First, olanzapine is the most prescribed drug class for antipsychotic use, making up about 20% of prescriptions. Second, competition will be limited because Lilly’s Zyprexa Relprevv is the only real competitor in the long-acting olanzapine market, but that drug is linked with PDSS, so Teva has the opportunity to capture a big piece of this large market. Third, Teva is becoming better positioned among healthcare professionals in this market as Uzedy, which targets lower-symptom schizophrenia, continues to tick up nicely. After updating our model and accounting for a more favorable outlook for the drug, we raised our fair value estimate to $14.50 per share from $13.50.