Teva Receives Big Blow On Generics Pricing

8/7/17

Recently, Teva Pharmaceutical (NYSE:TEVA) released its second-quarter earnings report. The report showed that the company missed on both its bottom-line and top-line of expectations. The root cause for such a miss is largely attributed to lower prices on competing generic products. Despite the large drop of 27% since Thursday's report, the stock is still a good short opportunity. Why is that? The poor earnings due to generic pricing pressure will only get worse. Being that Teva is one of the largest generics drug maker in the world, this poses a major problem. One of the company's top selling drugs Copaxone continues to tumble in sales due to generic competition. These issues along with many other issues I will describe below will show my reasoning for why I believe Teva is a good short opportunity.

The Numbers

The earnings for the second quarter were terrible. Teva reported that it had earned $1.02 per share for the second quarter. That compares to analysts expecting the company to earn at least $1.06 per share. With this in mind, I might say okay the EPS number was only off by a small margin. The problem is that the revenue number fared much worse for the quarter, decreasing by a wider margin. Teva reported that it had earned $5.686 billion for the quarter, which was way below analysts' expecting $5.718 billion. Just how much of a miss was that? The revenue for the quarter missed by $300 million. That means that generic pricing pressure really put Teva in a huge bind.

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