Omer regev
18/07/2016
SUMMARY
Shares of Teva traded up ~4% (vs. the S&P 500 ~flattish) after the company raised 2Q16 estimates and provided strong full-year 2016-2019 guidance. We note that Teva assumes no generic competition for the 40 mg/mL dose of Copaxone in its guidance, but does embed ~$200-300 million in annual erosion on the overall franchise. Our consultant checks indicate that the district court ruling, likely to come in early 2017, will be the most important catalyst in determining Copaxone's fate. While some investors may have preferred that Teva account for a potential patent loss in its guidance, at ~9x consensus 2017 EPS and significant Copaxone erosion already embedded, we believe that the risk-reward is favorable. We maintain our Outperform rating.
KEY POINTS
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Actavis Deal: Though the new amended agreement indicates a 3-month extension of the closing date to 10/26/16, management indicated that it added that language out of conservatism and expects the deal to close at "any time." Teva has announced six divestitures which do not yet add to the $1.1B divestiture target. However, management noted that there are unannounced transactions as well.
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Yearly Guidance: Teva provided 2016/2017 revenue guidance of $22.0-22.5B and $25.2-26.2B, respectively (vs. consensus of $22.5B/$25.2B), and 2016/2017 EPS guidance of $5.20-5.40 and $6.00-6.50, respectively (vs. consensus of $5.25/ $5.89). We believe that the guidance forecasts are strong (with ~$200-300M Copaxone annual erosion), and note that the midpoint of the 2016/2017 EPS guidance ranges are ~3%/~3% above our prior estimates.
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2Q16 Guidance: Management upwardly revised 2Q16 revenue guidance to $4.9-5.0B (vs. prior $4.7-4.9B) and adj. EPS guidance to $1.19-1.22 (vs. prior $1.16-1.20). While Symphony Health data indicate Q/Q TRx declines for Azilect/ Nuvigil/ProAir/Qvar/Pulmicort, management noted Q/Q sales increases in the CNS and respiratory franchises. We believe that the ex-US business was likely strong for 2Q in addition to a stable generics business.
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Consultant Commentary: While the IPR decision will be a significant catalyst for Copaxone (likely in August), our consultant conversations indicate that the district court ruling (likely in 1Q17) will be more important. Our consultant work, though, indicates a 50/50 toss-up scenario on that ruling. We note that Teva assumes no generic Copaxone 40mg competition in its 2016-2019 guidance.
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Model Changes: We are slightly decreasing our 2016 revenue estimate to $22.4B (vs. prior $22.6B), in line with the guidance, and increasing our adj. EPS estimate to $5.24 (vs. prior $5.14) on lower OpEx. Our 2017 adj. EPS estimate moves to $6.00 (vs. prior $6.09). We maintain our Outperform rating but are slightly reducing our price target to $72 (vs. prior $77).
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