What happened
Following fourth-quarter financial results that outpaced industry watchers' estimates, shares in Teva Pharmaceutical (TEVA 0.86%) are up nearly 10% at noon on Wednesday.
So what
Teva Pharmaceutical is in the midst of restructuring its business to reduce expenses and reinvigorate sales in the face of headwinds associated with generic competition to its top-selling multiple sclerosis drug, Copaxone. In Q4, it appears its turnaround may be taking hold.
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The healthcare company reported today that revenue ticked up 1.1% year over year to $4.47 billion in Q4. Non-GAAP (adjusted) earnings per share clocked in at $0.62. Those results bested Wall Street estimates by $120 million and $0.01 per share, respectively. For the full year, revenue fell 8% year over year to $16.9 billion.
Although Copaxone revenue in North America fell 26% year over year, to $264 million, last quarter because of generic alternatives, Teva still delivered modest fourth-quarter sales growth because of strong sales of Austedo, a tardive dyskinesia treatment, and Ajovy, a migraine treatment. Austedo and Ajovy sales were $136 million and $25 million, respectively, in the quarter.
Bottom-line performance was driven by lower operating costs compared to the same quarter a year ago. Non-GAAP research and development costs fell to 5.3% of sales from 6.5% of sales; selling and marketing expenses dropped to 14.9% of sales from 17.4% of sales; and general and administrative costs decreased to 6.9% of sales from 7.5% of sales. As a result, non-GAAP operating income was $1.06 billion, up 12% from Q4 2018; and non-GAAP diluted EPS was $0.62, up from $0.53 the year prior.
Teva also reported its free cash flow improved to $974 million in the quarter from $522 million last year, and that it eliminated $2 billion in debt last year.
Now what
The quarterly performance is encouraging, but more work remains. Despite paying down a lot of debt, the company still finished the year owing $26.9 billion, and Copaxone sales are forecast to fall to $1.2 billion in 2020 from $1.5 billion last year.
Fortunately, the company's more recently launched drugs, including Austedo and Ajovy, should offset the Copaxone drag. Teva is guiding for revenue of $16.6 billion to $17 billion this year, about in line with last year. It expects Austedo and Ajovy sales to improve to $650 million and $250 million from $412 million and $96 million in 2019, respectively.
Teva is also projecting bottom-line benefits associated with its cost-cutting to carry over into 2020. Because the company has eliminated $3 billion in annual expenses, it expects EPS between $2.30 and $2.55 this year, compared to $2.40 in 2019. Investors may want to watch quarterly results throughout 2020 to make sure that early signs of a recovery in its business improve further before buying.
