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Why Teva Pharmaceutical Is Crashing Today

What happened

After the company provided investors with yet another disappointing update to its financial performance, shares in Teva Pharmaceutical (NYSE: TEVA) are losing 15% as of 1 p.m. EDT.

So what

It's been tough going in 2017 for the world's biggest generic drugmaker, and unfortunately, investors hoping that the worst was behind the company earlier this year may have to settle in and expect some more rockiness.


Teva Pharmaceutical's third-quarter performance continued to be hamstrung by ongoing generic drug pricing weakness. The company's also seeing sales in its specialty pharmaceuticals unit slip as demand for its multibillion-dollar multiple sclerosis drug, Copaxone, shifts to biosimilar alternatives. 

Overall, Teva Pharmaceutical's third-quarter sales fell 1% to $5.6 billion when compared to the same time last year. As a result, non-GAAP (generally accepted accounting principles) profit tumbled 23.7% to $1 per share in the period. Generic medicine sales slipped 7.7% to $3 billion, and a 7% drop in Copaxone sales resulted in specialty medicine sales slipping 0.7% to $2 billion.

Now what

Fellow Motley Fool Sean Williams did a nice job outlining the bull thesis for Teva Pharmaceutical recently, and certainly, long-term investors should be encouraged by Teva Pharmaceutical's bargain-basement valuation and long-term tailwinds associated with a bigger and older global population.

In the intermediate term, however, the company's still got a lot of obstacles to overcome. It cut its dividend by 75% after the second quarter to free up cash to pay down debt. It also sold some assets for nearly $2.5 billion. Yet, debt remains north of $35 billion, and as a result, its financial expenses, including interest expense, foreign exchange losses, and derivatives losses, were $259 million in the quarter, up from $150 million one year ago.

Cash flow is still positive, but investors will need to closely watch to see what happens in the coming quarters following the FDA approval of Mylan's (NASDAQ: MYL) 40 mg Copaxone in October. A 20 mg Copaxone has been available for a while, but Teva's been able to keep Copaxone market share by shifting patients to its longer-lasting 40 mg version. That could change now that there's a 40 mg alternative. 

As for guidance, Teva Pharmaceutical appears to be baking in the 40 mg Copaxone risk. It's taken its revenue outlook down to at least $22.2 billion from at least $22.8 billion and its non-GAAP earnings-per-share (EPS) forecast down to at least $3.77 from its prior outlook for at least $4.30 per share. 

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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.