Judging by the performance of Teva Pharmaceutical (NYSE:TEVA) shares in recent months, it seems investors are starting to believe that the world’s largest generic drugmaker is taking the right steps in its turnaround strategy.
The company reports earnings Thursday before the bell. On average, analysts expect the company to earn 65 cents per share on revenue of $4.74 billion.
Shares have surged 30% since the Israeli company produced powerful first-quarter earnings, beating the consensus forecast by a big margin. A similar performance for Q2 will show that CEO Kare Schultz is in control of his plan to cut costs and manage a huge pile of debt.
Teva is trying to recover from a three-year slump that sent its shares tumbling as the company invested heavily to grow its copycat medicines business. That happened at a time when margins began to shrink in the U.S. amid fierce competition from other producers. The biggest setback came when Teva lost its monopoly on Copaxone, a blockbuster multiple sclerosis injection that at one point generated half of Teva’s profits.
Despite the ups and downs of the past three years, there are signs that Teva is gaining some ground. Teva raised its full-year guidance in May, anticipating earnings between $2.40 and $2.65 a share, up from a previous per-share range of $2.25 to $2.50. It now sees revenues of $18.5 billion to $19 billion, up from $18.3 billion to $18.8 billion.
Keep An Eye On Cost Cuts
To further cement this recovery, Teva needs to show that prices for its products are bottoming out in the U.S., the world’s largest pharmaceutical market, and its new product launches are performing well despite the tough market conditions.
Teva launched 10 generic products in the first quarter, but said its generics business is still under pressure. Copaxone retained much of its market share in the first quarter with aggressive price cuts.
Details on cost cuts will be crucial. Schultz, who took over in November last year, plans to slash the company’s workforce by 25%, targeting to reach about half of that goal by the end of the second quarter. Teva has more than $17 billion of debt due over the next five years.
After managing investors’ expectations with dire forecasts about its future, Teva has set the stage to impress with better-than-expected results down the road. But it’s a long road to recovery, especially when the U.S. pharmaceutical industry is going through drastic changes, ranging from accelerated Food and Drug Administration (FDA) approval of competing medicines to government regulation that limits drug prices.