Teva (TEVA) Q2 Earnings Coming Up: What’s in the Cards?

Teva Pharmaceutical Industries Ltd. TEVA will report second-quarter 2018 earnings on Aug 2, before market open. In the last reported quarter, the company delivered a positive earnings surprise of 38.2%.

This generic drug maker’s shares have risen 22.1% this year so far against the industry’s decline of 4.1%.

Teva’s earnings surpassed expectations in two of the last four quarters, and missed expectations in the remaining two, resulting in an average positive surprise of 10.1%.

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

Factors to Consider

As announced in November last year, Teva no longer reports two separate global groups for its two businesses – generics and specialty medicines. Instead, it reports under new segments based on three regions — North America (United States and Canada), Europe and Growth Markets.

Pricing erosion in U.S. generics market, lower sales of key multiple sclerosis drug, Copaxone and divestiture of some non-core assets in the Women’s Health business are expected to North America segment sales in the second quarter. Meanwhile, Teva’s branded respiratory products like ProAir and Qvar should provide some support to the top line.

On the first-quarter call, Teva had said that despite Mylan's MYL introduction of a 40 mg generic, Copaxone, it still commanded around 85% of volumes in the 40 mg market. However, Teva had to decrease the price of Copaxone by increasing rebates in connection with generic competition. The lower pricing helped it maintain its volume share. Back then, Teva also said that Sandoz’s generic version of Copaxone 40 mg had not gained any significant traction yet. However, Teva had warned of tougher competition in the year ahead, which could exert some further pressure on pricing in the second quarter and hurt sales.

Meanwhile, in Europe as well as Growth Markets segments, loss of revenues from the divestiture of the women’s health business 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.

Cost savings from Teva’s aggressive restructuring initiatives announced last year is however likely to provide some support to the bottom line. Teva has a new organizational structure in place, is closing plants, cutting down its generics portfolio, divesting non-core assets, eliminating low-value R&D projects, and aims to cut its global workforce by more than 25% over the next two years. Teva expects to save almost $3 billion by the end of 2019 from these initiatives. An update is expected on the re-structuring plan on the second-quarter call.

In 2018, Celltrion, Teva’s manufacturing partner for migraine candidate, fremanezumab, got a warning letter from the FDA, which delayed the approval of fremanezumab. Celltrion makes the active pharmaceutical ingredient (API) for fremanezumab. This setback came at a time when Amgen and Lilly’s new migraine products are due to be launched this year. Also, in June, Teva discontinued a late-stage study evaluating fremanezumab for chronic cluster headache. We expect many investor questions on fremazumab on the second-quarter call.

Earnings Whispers

Our proven model does not conclusively show that Teva is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Earnings ESP: Its Earnings ESP is -1.69% as the Most Accurate Estimate stands at 66 cents per share while the Zacks Consensus Estimate is pegged higher at 67 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’s Zacks Rank #2 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings beat

We caution against stocks with a Zacks Rank #4 or #5 (Strong Sell) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some drug/biotech stocks that have the right combination of elements to beat on earnings this time around:

Aduro BioTech ADRO has an Earnings ESP of +4.55% and a Zacks Rank #3. The company is expected to release results on Aug 1.

BioDelivery Sciences BDSI has an Earnings ESP of +3.23% and a Zacks Rank #2. The company is scheduled to release results on Aug 9. You can see the complete list of today’s Zacks #1 Rank stocks here.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research