Favorable resolution of Teva’s legal issues could send shares soaring.
Photo: Simon Dawson/Bloomberg NewsMuch to the relief of shareholders, seemingly endless turmoil at Teva Pharmaceutical TEVA 7.29% Industries has largely subsided.
The generic drugs giant reported second-quarter sales of $3.9 billion and adjusted earnings of 55 cents a share on Wednesday morning. That profit figure topped analyst estimates, and Teva affirmed its full-year financial outlook. Shares rallied in morning trading.
A smooth and uneventful earnings report is a welcome change: The company has struggled for years with a sudden collapse in generic drug prices in North America, coupled with too much debt on its books due to poorly timed acquisitions. The stock is down more than 80% from the 2015 highs.
A return to those prices any time soon is highly unlikely, but the company has gradually turned its fortunes around under Chief Executive Kare Schultz, who took over in 2017. Gross profit margins in North America improved by two percentage points from a year earlier to 53.3%, thanks to stronger sales of the migraine treatment Ajovy and the Huntington’s disease drug Austeddo.
Free cash flow topped $1.1 billion in the first half of the year, more than double the total in the first half of 2019. That has resulted in a cleaner balance sheet: net debt of just under $24 billion is down from about $35 billion when Mr. Schultz took the job.
Teva hasn’t escaped from its past altogether. The company is in talks with state attorneys general to settle liabilities stemming from the opioid crisis. Teva also may have to settle years-old claims that it fixed generic drug prices, though the company has denied any wrongdoing in both cases.
But those problems mean Teva might offer value in an increasingly expensive market: adjusted for net debt, the company’s market value is about eight times this year’s expected earnings before interest, taxes, depreciation and amortization. Favorable resolution of its legal issues could send shares soaring.
It is unclear when investors will have an answer on that key question. But in the meantime, less excitement at Teva is exactly what investors want to see.
Write to Charley Grant at charles.grant@wsj.com
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