Update on Teva: Long term is still Bullish

Teva Pharmaceuticals, a prominent player in the global generics market, has faced numerous challenges in recent years, including legal battles, pricing pressures, and regulatory hurdles. However, despite these challenges, I remain cautiously optimistic about the company’s long-term prospects.

Strong Brand Growth and Focus on 2027 Goals

Teva’s management has demonstrated resilience by remaining focused on its strategic goals for 2027. Their commitment to expanding their portfolio of branded products is encouraging and Teva´s pipeline management has positively surprised, and this is likely to continue . According to recent meetings, the company’s current brands are performing well, and management is confident in their ability to continue driving growth. This is a key factor for my optimism about Teva’s future.

One of the standout products in Teva’s portfolio is Austedo, a treatment for tardive dyskinesia, which management expects to reach $2.5 billion in sales by 2027. The once-daily format of Austedo has leveled the playing field against its competitors, improving patient compliance and persistency. This bodes well for Teva’s ability to meet its long-term goals.

Expanding into Long-Acting Injectables (LAIs)

Teva’s foray into long-acting injectables, such as Uzedy and olanzapine LAI, represents a promising growth opportunity. While the commercial potential of these products is still unfolding, the company’s pricing discipline and ability to cater to different patient populations (ranging from mild to severe psychiatric cases) highlight their potential. This focus on LAIs could provide a new revenue stream for Teva and help diversify its portfolio.

Underestimated Pipeline Potential

Teva’s pipeline of products, particularly in the immunology and inflammation (I&I) space, is much broader than is currently appreciated by investors and therefore not reflected in its stock price. The partnership with Sanofi for the commercialization of TL1a, a treatment for Crohn’s disease, is a major advantage, as Sanofi’s established relationships with physicians and payers will likely accelerate market penetration.

Furthermore, Teva’s work in the respiratory space, particularly with its ICS/SABA combination for asthma, holds significant promise. The U.S. market alone presents an opportunity to treat millions of patients, and Teva’s likelihood of success in its ongoing Phase 3 trials is high. I’m particularly encouraged by the advantage Teva has with its dry powder device, which could give it a competitive edge over traditional delivery methods.

Stability in Generics and Biosimilars

While Teva’s generics business has faced pricing pressures, it remains a cornerstone of the company’s revenue stream, particularly outside the U.S., where margins have been more stable. Teva’s expertise in manufacturing and regulatory matters has allowed it to maintain a competitive edge in this space, and management expects modest growth from generics and biosimilars over the coming years. All eyes has been on U.S. generics but it is worth noting that the majority of Generics sales comes from outside the U.S. and that this part of the Generics business is and has been performing well.

The generics business also plays a critical role in Teva’s debt reduction strategy. As the company deleverages, there will be more financial flexibility to invest in the growth of its branded products and pipeline. This disciplined approach to managing debt, combined with steady cash flow from generics, gives me confidence that Teva will emerge stronger in the long term.

Risks and Caution

Despite these positive developments, it’s important to acknowledge the risks Teva faces. The company’s exposure to litigation, particularly related to the opioid crisis, remains a significant overhang. Additionally, there is a risk that some of Teva’s pipeline products may not deliver the expected clinical results or commercial success. However, I believe that the company’s diversified portfolio and focus on innovative treatments provide a solid foundation to weather these challenges.

Moreover, the broader regulatory environment remains unpredictable, and any changes in healthcare policy, particularly in the U.S., could impact Teva’s ability to meet its financial targets. That said, the management’s proactive approach to navigating these challenges is reassuring - especially since Teva has had a long history of not being proactive in managing the risks of the company (pre Kaare Schultz).

A Path to Growth with Cautious Optimism

While Teva faces ongoing challenges, there are clear reasons for optimism. The company’s focus on branded products, particularly in areas like Austedo and long-acting injectables, combined with a broader pipeline that is not fully priced into the stock, provides strong growth potential. The generics business, while not the main driver of future growth, remains a stable and critical part of Teva’s financial health.

As Teva continues to deleverage and reinvest in its future, I am cautiously optimistic about its long-term prospects. The road ahead will not be without obstacles, but with a solid strategy and focused execution, Teva is well-positioned to achieve its goals by 2027 and beyond. With beyond I man 2028, and here is what my model currently looks like for Teva by 2028. This is not advice, just how I see the share price of the company developing. Remember, there are always things we don’t know about a company. Always useful to have Carl Richards in mind: “Risk is what’s left when you think you’ve thought of everything.”

From the model:

With that, thanks for reading, I really appreciate the interest. See you next time.