Israel-headquartered Teva has released financial results for the first quarter of 2016 showing a year-on-year (y/y) revenue decline of 3.4%. The performance was affected by a 17% y/y decline in generics sales (including a 32% y/y decline in US sales of generics).
Implications | Teva Pharmaceuticals posted a 3.4% y/y revenue decline to USD4.81 billion (equivalent to a 1% revenue slip on a constant currency basis), compared with USD4.98 billion in the first quarter of 2015. Sales of Teva's speciality medicines increased 10% y/y, partially offsetting a 17% y/y decline in the overall generics market segment. |
Outlook | A decline in US (and to a lesser extent European) generics revenues will be a cause for investor concern. Overall, however, the company's performance exceeded market expectation. The Israeli firm announced that the planned takeover of Allergan (US, tax domiciled in Ireland) was on course to be completed in June. Teva is gearing up to divest up to USD2 billion in assets (equivalent to about 50 commercial pharmaceutical products and 25 under development) in order to meet US Federal Trade Commission's regulatory conditions. |
The Israeli pharmaceutical major Teva released financial results for the first quarter of 2016 yesterday (9 May) showing revenues of USD4.81 billion. This represents a 3.4% year-on-year (y/y) revenue decline against the equivalent quarter in the 2015 financial year. Gross profits for the quarter grew to USD1.820 billion, compared with USD1.826 billion in first-quarter 2015 (see here). This comprised profits from the multiple sclerosis market segment, amounting to USD805 million (44%), speciality medicines, at USD380 million (21%), and OTC medicines, of USD51 million (3%). The generic medicines division generated profits amounting to USD584 million during the quarter, representing a 27% y/y decrease compared with profits of USD799 million in first-quarter 2015. There were increases in research and development (R&D) expenditure during the period, but also sizeable decreases in cost of sales, and sales and marketing expenditure.
Q1 2016 | Q1 2015 | Y/Y, % change | |
|---|---|---|---|
Teva's net revenue | 4,810 | 4,982 | -3.4 |
Generic medicines | 2,170 | 2,621 | -17 |
Speciality medicines | 2,152 | 1,956 | 10 |
Cost of sales | 2,019 | 2,146 | -5.9 |
Sales and marketing expenses | 839 | 922 | -9 |
R&D expenses | 389 | 322 | 17.1 |
General and administration expenses | 304 | 307 | -0.9 |
Legal settlements | -25 | 227 | N/A |
Restructuring and impairments | 119 | 299 | -60.2 |
Operating income * | 1,165 | 749 | 55.5 |
Operating margin ** | 23 | 15 | 8 pp increase |
R&D as % of net sales | 7.8 | 6.7 | 1.1 pp increase |
Net income | 570 | 446 | 27.8 |
Source: Teva * IHS estimate: net sales minus cost of goods sold, sales, R&D, and general and administrative expenses ** IHS estimate: operating income as a percentage of net sales | |||
Over-the-counter (OTC) medicines sales accounted for 10% (USD488 million) of revenues, compared with 8% (USD405 million) in the corresponding period of 2015. In contrast, a breakdown of the generics quarterly revenues figures show that the segment accounted for 45% of revenues (USD2.170 billion), down from 52% in first-quarter 2015 (USD2.621 billion). Assuming the transaction of Allergan's Actavis generics business is completed later in 2016, then the new company is expected to derive up to two-thirds of revenue from generics.
Segment | Q1 2016 | Y/Y, % change (reported) |
|---|---|---|
Generic medicines | 2,170 | -17 |
- API | 197 | 25 |
Speciality medicines | 2,152 | 10 |
Central nervous system | 1,323 | 8 |
- Copaxone (glatiramer acetate) | 1,006 | 9 |
- Azilect (rasagiline) | 113 | 6 |
- Nuvigil (armodafinil) | 103 | 21 |
Respiratory | 366 | 38 |
- ProAir (albuterol inhalation) | 173 | 40 |
- Qvar (beclomethasone dipropionate) | 134 | 37 |
Oncology | 268 | 2 |
- Treanda (bendamustine)/Bendeka (bendamustine hydrochloride) | 155 | -1 |
Women's Health | 110 | -15 |
Other speciality | 85 | 9 |
OTC | 288 | 35 |
Other revenues | 200 | 4.1 |
Total | 4.81 | -3.4 |
Source: Teva | ||
The company's multiple sclerosis (MS) drug Copaxone (glatiramer acetate) achieved a 9% y/y increase in global sales to USD1.006 billion, compared with USD924 million in the corresponding 2015 period. On that basis, the MS drug accounts for 20.9% of Teva's revenues. This compares with 18.5% of revenues in the first quarter of 2015. US sales of Copaxone (40 mg) in first-quarter 2016 amounted to USD821 million, versus USD185 million excluding the US market. Overall, the drug contributed to 44% of the company's profitability in the first quarter, versus 42% for the entire 2015 financial year. Teva has signalled that it would face generics competition to Copaxone from Glatopa (20 mg; Sandoz, a subsidiary of Swiss firm Novartis). In a strategy to counter generics competition to Copaxone, the Israeli manufacturer has sought to provide patients with a higher-dose treatment that requires less frequent administration.
Since the launch of the orphan-designated drug Bendeka (bendamustine hydrochloride) in the United States – indicated for the treatment of chronic lymphocytic leukemia (CLL) and for the treatment of patients with indolent B-cell non-Hodgkin lymphoma (NHL) – Teva has reported that it had secured a patient adoption rate of 71% as of May 2016 (see United States: 9 December 2015: Teva and Eagle Pharma's Bendeka obtains US FDA approval). Bendeka is likely to "become a relatively small product" for Teva, according to an earnings release statement, but even so should make a positive revenue contribution in coming quarters.
The decrease in the US revenue picture was mainly attributed to a sales decline amounting to USD427 million for the proton pump inhibitor Nexium (esomeprazole) and the Crohn's disease treatment Pulmicort (budesonide inhalation) due to loss of exclusivity.
Market segment | Q1 2016 | Q1 2015 | Y/Y, % change |
|---|---|---|---|
Generic medicines | 2,170 | 2,621 | -17 |
- United States (44.9%) | 976 | 1,439 | -32 |
- Europe (30.9%) | 671 | 680 | -1 |
- Rest of World (24.1%) | 523 | 502 | 4 |
Specialty medicines | 2,152 | 1,956 | 10 |
- United States (77.9%) | 1,677 | 1,479 | 13 |
- Europe (18.3%) | 394 | 405 | -3 |
- Rest of World (3.8%) | 82 | 72 | 13 |
Other revenues | 488 | 405 | 20 |
- United States (0.8%) | 4 | 3 | 33 |
- Europe (34.8%) | 170 | 182 | -7 |
- Rest of World (64.3%) | 314 | 220 | 43 |
Total revenues | 4,810 | 4,982 | -3.4 |
Source: Teva Note: All 28 EU member states, including Switzerland, Norway, Albania, Kosovo, Serbia, Macedonia, Bosnia and Herzegovina, and Montenegro. | |||
Using figures published by Teva, IHS Life Sciences calculates that the US geographic market accounted for 55.2% of the company's total revenues (equivalent to USD2.657 billion in revenues). European revenues totalled USD1.235 billion in revenues or equivalent to a 25.6% share. Elsewhere, the Israeli firm generated USD919 million in revenues from the Rest of the World (RoW) market territory (corresponding to a 19.1% market share overall).
Outlook and implications
In a statement, Teva announced that it expected to have in excess of 1,000 new product launches in 2016 (including Actavis generics launches) followed by approximately 1,500 new products in 2017. Assuming that the acquisition receives final clearance in mid-2016, the new combined company will have a total of 123 first-to-file drugs (up from 110 in July 2015 – see here) and 326 ANDA submissions (up from 310 in July 2015) through the US FDA (excluding pending divestments of about 20 products). Looking ahead, the Israeli firm noted that it expected the acquisition of Actavis's generics arm to result in cost synergies and tax savings of USD1.4 billion annually (from 2019). This assumes that USD1.1 billion of global revenue will have to be divested to guarantee regulatory clearance from the Bureau of Competition and Bureau of Economics in the US. EU regulatory clearance has already been secured.
In terms of the US pricing environment, Teva forecasts a 4% price erosion of its generic medicine portfolio in 2016, but with continuing strong profitability. This figure has not changed from previous price forecasts in the last two quarters of 2015. This contrasts against warnings of a worsening generics price erosion in the US in 2016 from a handful of other competitor generics manufacturers. On that basis, the Israel-based generics manufacturer issued an upbeat forecast for the remainder of the financial year. Revenue guidance in the second quarter is set at between USD4.7 billion and USD4.9 billion.