What Caused Teva Pharmaceutical to Crash 10.6% Today

MarketsMotley Fool

What happened

After reporting better-than-expected financial results for the fourth quarter, weak guidance for 2018 sent Teva Pharmaceutical (NYSE: TEVA) shares tumbling 10.6% today.

Continue Reading Below

So what

Teva Pharmaceutical has had a bad year, so it might not be too surprising to learn that revenue at the market-leading generic drugmaker dropped 15.9% year over year, to $5.46 billion, or that earnings per share fell nearly 33%, to $0.93. The decline in the fourth quarter brought Teva Pharmaceutical's full-year sales to $22.4 billion, up 2% from 2016, and its non-GAAP earnings per share (EPS) to $4.01, down from $5.22 in 2016.

The quarterly results were a little better than investors were modeling, and full-year results were within the range outlined by the company in November. Specifically, quarterly sales and EPS beat analyst forecasts by $150 million and $0.17, respectively, and the full-year forecast back in November was for sales of at least $22.2 billion and non-GAAP EPS of at least $3.77.

The arguably acceptable performance might not have caused a sell-off in shares if not for shockingly bad guidance for 2018. Management expects that ongoing pricing pressure throughout the generic drug industry and new competition for its best-selling drug Copaxone will cause revenue to fall to between $18.3 billion to $18.8 billion, and non-GAAP EPS to decline to a range of $2.25 to $2.50.

Now what

The company's knee-deep in a restructuring that's already included abandoning its dividend and selling some non-core assets. Yet the dramatic drop in sales and profit expected in 2018 shows that there's a lot of work left to be done.

One of the biggest headwinds facing the company is declining demand for Copaxone following Mylan's (NASDAQ: MYL) launch of a copycat last fall. Prior to Mylan's FDA OK, Copaxone was selling at a $4 billion annualized pace and accounting for about 20% of Teva Pharmaceutical's total companywide revenue. In Q4, Copaxone's sales fell 19% globally, to $821 million, because of a 25% drop in the United States. Clearly, Mylan's Copaxone alternative is crimping Teva Pharmaceutical's prescription volume and pricing power.

That's unlikely to change in 2018, and that could be a problem for investors hoping for a quick rebound in Teva Pharmaceutical's fortunes. Teva Pharmaceutical is still weighed down by $32.5 billion in debt because of its $40 billion acquisition of Allergan's (NYSE: AGN) generic-drug business. Because of that debt, its non-GAAP financial expenses were $209 million in the fourth quarter of 2017 alone. Since sales are declining, the company's going to have to continue carving away at expenses to get its balance sheet back in shape.

It's anyone's guess how long that will take, but until the company can demonstrate that sales are stabilizing, I think it will be a rocky ride for investors. Given that backdrop, there are probably other stocks worth buying instead.

10 stocks we like better than Teva Pharmaceutical IndustriesWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Teva Pharmaceutical Industries wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 5, 2018

Todd Campbell owns shares of Mylan. His clients may have positions in the companies mentioned. The Motley Fool recommends Mylan. The Motley Fool has a disclosure policy.

Continue Reading Below