Company Reports

No-moat Teva Pharmaceuticals announced on Feb. 23 that Simlandi, its biosimilar to Humira (adalimumab), has received US Food and Drug Administration approval with an expected imminent launch date. Simlandi is approved for a several indications, including the treatment of rheumatoid arthritis, psoriatic arthritis, and Crohn’s disease. Simlandi was developed and manufactured by Alvotech, while Teva is responsible for commercialization. Teva entered into a partnership with Alvotech, a biologics manufacturer specializing in biosimilars, in 2020; the two firms have a number of other biosimilars in the pipeline. We maintain our fair value estimate of $13.50 per share for Teva.

No-moat Teva Pharmaceutical Industries' fourth-quarter results were better than our expectations. Total sales rose 14.8% year over year, driven by key branded drugs and a strong performance from Europe. During the quarter, Teva also received an up-front payment of $500 million from Sanofi related to their partnership to codevelop TEV’574, an anti-TL1A asset that is currently in phase 2b trials for ulcerative colitis and Crohn’s disease. While taking this out of the equation brings down sales growth to the low single digits, we still saw healthy margin improvement. After rolling our model, adjusting our assumptions, and accounting for the time value of money, we are raising our fair value estimate to $13.50 per share from $11.50.

Teva is the leading generic drug manufacturer in the world. By our estimate, roughly 70% of its total sales are derived from generics and off-patent branded drugs, and the company continues to suffer low- to mid-single-digit erosion year over year in developed markets like North America and the majority of Europe. Because price and margin headwinds exist predominantly in small-molecule oral tablets that are easy to produce, Teva has been downsizing its generics pipeline and focusing on complex generics. It historically went after 80% of drugs coming off patent, but it will now focus on just 60% because the incremental value from the remaining 20% is marginal. This enables the company to allocate development expenditures to other more profitable avenues, such as complex generics—drugs that have complex formulations or dosage forms or are injected or have more-complex administration. Complex generics are more difficult to manufacture, which limits competition. Price, volume, and margin are highly dependent on the competitiveness of a drug, so complex generics pave an opportunistic road for Teva. However, other players in the industry are employing a similar strategy, so success in this area relies on Teva’s ability to seek out profitable drugs and efficiently launch them to market.

No-moat Teva Pharmaceutical reported solid third-quarter earnings that came in higher than we had anticipated. Total sales were up 7.1% year over year thanks to strong performance across regions with generics in North America and Europe showing particularly solid growth. Management lifted full-year sales guidance to $15.1 billion-$15.5 billion from $15.0 billion-$15.4 billion after slightly raising sales expectation for Copaxone and other minor developments during the fourth quarter. These changes were not material enough to change our valuation, so we maintain our fair value estimate of $11.50 per share.

No-moat Teva announced today that it has agreed to collaborate with Sanofi to codevelop and cocommercialize TEV’574. As part of the agreement, Teva will receive an upfront payment of $500 million and up to $1 billion in milestone payments. The two firms will equally share development costs as well as profits and losses in major markets with Teva leading commercialization in Europe and Israel and Sanofi in North America, Japan, and other Asian markets. TEV‘574 is an inflammatory bowel disease, or IBD, a treatment that is currently in Phase 2b for ulcerative colitis, or UC, and Crohn’s disease, or CD. It is part of an anti-TL1A class of therapies that has recently drawn a lot of attention as two other major pharmaceutical companies, Pfizer and Merck, pursued their ways and have shown promising results. Pfizer partnered up with Roivant to develop RVT-3101 and Merck purchased Prometheus Biosciences in June 2023 for $10.8 billion and brought in MK-7240 (previously called PRA023). RVT-3101 is preparing for phase III development in UC and is in phase II for CD. MK-7240 is estimated to start its phase III study for UC by year-end. While TEV’574 lags the two drugs in terms of clinical trial timing—it started phase II for UC and CD in August 2022 and is currently in phase IIb—we still think it can be a good growth driver for Teva. Management estimates roughly 10 million people worldwide live with IBD and this largely underserved market is expected to be worth over $28 billion by 2028. We are raising our fair value estimate to $11.50 from $11.00 to reflect the time value of money as well as a more favorable outlook for the drug.

Teva is the leading generic drug manufacturer in the world. By our estimate, roughly 70% of Teva’s total sales are derived from generics and off-patent branded drugs and it continues to suffer low- to mid-single-digit erosion year over year in developed markets like North America and the majority of Europe. Because price and margin headwinds exist predominantly in small-molecule oral tablets that are easy to produce, Teva has been downsizing its generics pipeline and focusing on complex generics. Teva has historically went after 80% of drugs coming off of patent, but it will now just focus on 60% because the incremental value from the remaining 20% is marginal. This enables the company to allocate development expenditures to other more-profitable avenues, such as complex generics—drugs that have complex formulations, dosage forms, or are injected or have more-complex administration. Complex generics are more difficult to manufacture, which by nature limits competition. Price, volume, and margin are highly dependent on the competitiveness of a drug, so complex generics pave an opportunistic road for Teva. However, other players in the industry are employing a similar strategy, so success in this area relies on Teva’s ability to seek out profitable drugs and to efficiently launch them to market.

No-moat Teva reported second-quarter earnings that were slightly ahead of our expectations. Total sales were up 2.4% year over year, driven by strong performance from Teva’s key innovative medicines. We are raising our fair value estimate to $11 from $10.50 after baking in impacts from our raised near-term outlook as well as time value of money.

Teva is the leading generic drug manufacturer in the world. By our estimate, roughly 70% of Teva’s total sales are derived from generics and off-patent branded drugs and it continues to suffer low- to mid-single-digit erosion year over year in developed markets like North America and the majority of Europe. Because price and margin headwinds exist predominantly in small-molecule oral tablets that are easy to produce, Teva has been downsizing its generics pipeline and focusing on complex generics. Teva has historically went after 80% of drugs coming off of patent, but it will now just focus on 60% because the incremental value from the remaining 20% is marginal. This enables the company to allocate development expenditures to other more-profitable avenues, such as complex generics—drugs that have complex formulations, dosage forms, or are injected or have more-complex administration. Complex generics are more difficult to manufacture, which by nature limits competition. Price, volume, and margin are highly dependent on the competitiveness of a drug, so complex generics pave an opportunistic road for Teva. However, other players in the industry are employing a similar strategy, so success in this area relies on Teva’s ability to seek out profitable drugs and to efficiently launch them to market.

We are setting a fair value estimate of $10.50 per share for Teva Pharmaceutical, and we don't believe Teva has an established an economic moat. Our ten-year forecast lies on a low-single digit top line growth with a slight improvement in margin until 2029 when we start to expect difficult landscapes for its branded drugs.

Teva is the leading generic drug manufacturer in the world. By our estimate, roughly 70% of Teva’s total sales are derived from generics and off-patent branded drugs and it continues to suffer low- to mid-single-digit erosion year over year in developed markets like North America and the majority of Europe. Because price and margin headwinds exist predominantly in small-molecule oral tablets that are easy to produce, Teva has been downsizing its generics pipeline and focusing on complex generics. Teva has historically went after 80% of drugs coming off of patent, but it will now just focus on 60% because the incremental value from the remaining 20% is marginal. This enables the company to allocate development expenditures to other more-profitable avenues, such as complex generics—drugs that have complex formulations, dosage forms, or are injected or have more-complex administration. Complex generics are more difficult to manufacture, which by nature limits competition. Price, volume, and margin are highly dependent on the competitiveness of a drug, so complex generics pave an opportunistic road for Teva. However, other players in the industry are employing a similar strategy, so success in this area relies on Teva’s ability to seek out profitable drugs and to efficiently launch them to market.

We are dropping coverage of Teva Pharmaceutical. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

We are placing Teva under review as we evaluate analyst stock coverage decisions. As a reminder, we provide broad coverage of close to 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

We are lowering our fair value estimate for Teva Pharmaceutical to $10 per share from $11, primarily as a result of our lower top-line forecast over the next two years. The company's first-quarter performance left much to be desired, but most notable was a cut in Teva's forecast for Copaxone revenue to $750 million from $850 million and a reduction in its 2022 revenue guidance. An increase in generic competition in the United States, the company's largest market, contributed to the revised outlook.

Israel-based Teva Pharmaceutical is one of the largest global generic drug manufacturers, with a significant presence in the United States and in Western Europe. Generic drug manufacturers with large exposure to the U.S. have fared very poorly compared with the overall market over the past few years due to factors that resulted in a highly deflationary generic drug price environment. To combat further margin deterioration, the largest, most capable manufacturers have invested more heavily in development and marketing of complex generics and biosimilars, which face much less competition and price erosion than small-molecule generics.

Teva's 2022 at first glance appears to be more of the same, with flat to declining revenue and adjusted EPS weighing on a company that has struggled to offset declining sales of its largest drug (Copaxone) and has gradually lost market share in U.S. generic prescription drugs due to fewer product launches, constrained by its high debt load and litigation risk. As such we retain our extreme uncertainty rating and no-moat rating. On a positive note, however, we were pleasantly surprised with the company's margin improvement during the quarter, largely due to cost containment measures (reduction in manufacturing and office facilities), and the company was able to successfully refinance its looming 2023 maturities, reducing its liquidity risk. Primarily as a result of these improved margins, and adjustments to our forecast for the company's branded portfolio, we are raising our fair value estimate to $11 per share from $9.

Israel-based Teva Pharmaceutical is one of the largest global generic drug manufacturers, with a significant presence in the United States and in Western Europe. Generic drug manufacturers with large exposure to the U.S. have fared very poorly compared with the overall market over the past few years due to factors that resulted in a highly deflationary generic drug price environment. To combat further margin deterioration, the largest, most capable manufacturers have invested more heavily in development and marketing of complex generics and biosimilars, which face much less competition and price erosion than small-molecule generics.

Following an extensive review of the generic drug manufacturers under our coverage, we have revised our fair value estimates to better align with our expectations for revenue growth and margin erosion over the next five years. We are lowering our fair value estimate for Viatris to $14 per share from $25, lowering our fair value estimate for Teva Pharmaceutical to $9 per share from $20, and are raising our fair value estimate for Dr. Reddy’s Laboratories to $60 per share from $49. The shares of all three appear fairly valued in the market today. We are maintaining our no-moat rating and stable moat trend assessment for Viatris and Teva, as we believe heavy exposure to the U.S. and other pure generic markets where small-molecule generic drugs are highly commoditized will continue to pressure returns, despite the companies’ burgeoning investments in relatively more differentiated areas like complex generics and biosimilar drugs. We believe Dr. Reddy’s comparatively more differentiated approach lends itself to a narrow moat rating, with higher exposure to emerging markets (particularly India) where brand recognition translates to market power and stable pricing.

Israel-based Teva Pharmaceutical is one of the largest global generic drug manufacturers, with a significant presence in the United States and in Western Europe. Generic drug manufacturers with large exposure to the U.S. have fared very poorly compared with the overall market over the past few years due to factors that resulted in a highly deflationary generic drug price environment. To combat further margin deterioration, the largest, most capable manufacturers have invested more heavily in development and marketing of complex generics and biosimilars, which face much less competition and price erosion than small-molecule generics.

Teva Pharmaceutical Industries' third-quarter results were generally in line with our forecasts. Revenue fell shy of our projections as the rise in delta variant cases suppressed broader pharmaceutical usage, so we expect sales to rebound somewhat next quarter. We maintain our $20 fair value estimate and no-moat rating.

Teva posted moderate results this quarter, with revenue essentially flat and margins within our expected range. Despite middling sales, the company continued to reduce debt and may receive terms that dampen the severity of its eventual settlement in the opioid litigation. We maintain our fair value estimate of $20 per share and our no-moat rating.