TEVA Calls: Has Teva Pharmaceuticals Turned A Corner?

I initiated coverage on trading the options of Teva Pharmaceuticals Industries Ltd (NYSE:TEVA) in April in a post titled “Teva Pharmaceutical Industries: Growth Against All Odds.” In that piece, I examined the potentials for profits in TEVA options considering the fact that Teva is set to face a headwind with the potential loss of its COPAXONE patent.

I said I might be interested in the 55 Sept 2015 call option if I see how the appeal on the COPAXONE patent works out. The COPAXONE patent issue yet to be completed; hence, any discussion on Teva must work on the premise of two possible outcomes.

In case you joined us after I have written that April piece on Teva, it might interest you to know that Teva with its market capitalization of $50.11B is an Israel-based pharmaceutical and drug company. It develops, produces and markets generic drugs in all treatment categories.

Teva in the News

While the market awaits the outcome of proceedings on the COPAXONE patent appeal, Teva reported solid second quarter (Q2 2014) reports to signal that its anchor is holding even in turbulent waters. The company was able to deliver outperformance on some metrics as the highlights of the earnings show below:

  • Revenues of $5.0 billion, up 2% compared to the second quarter of 2013.
  • Non-GAAP operating income of $1.4 billion, an increase of 8%. GAAP operating income of $925 million.
  • Non-GAAP net income of $1.05 billion, an increase of 4%. GAAP net income of $748 million.
  • Non-GAAP diluted EPS of $1.23, an increase of 3%. GAAP diluted EPS of $0.87.
  • Strong cash flow from operations of $1.25 billion, an increase of 43%, excluding the effect of payment related to legal settlements.
  • Generic medicine revenues up 5%, with U.S. generics sales up 10% and generic medicine profitability up 41%.
  • EPS guidance for 2014 improved to $4.90-5.10 in the exclusive Copaxone® scenario, and to $4.50-4.80 in the generic Copaxone® scenario

More Reasons to Consider Bullish Plays

  • Vantage Position in the Industry

Teva holds the position of the world’s largest generic company considering the volume of its new and total prescriptions. In fiscal 2013, Teva controlled about 15.3% of total U.S generic prescriptions on almost 523 million prescriptions.

I strongly believe that Teva’s portfolio of 133 abbreviated new drug applications (ANDAs) and 51 first-to-file opportunities will help the company deliver growth in its top and bottom lines going forward.

  • Change in Business Direction

Teva is undoubtedly going through a rough patch as the danger of losing its COPAXONE patent looms. More so, the company has not been able to ink deals on generic opportunities in big drugs and the competition is becoming keener in the generic drugs business.

However, Teva is working towards repositioning itself for growth especially by paying more attention to its global presence as it seeks to reduce costs as the same time. For instance, Teva has expressed plans to pursue first-to-file and first-to-market opportunities in complex generics with less competition. In addition, the company seeks to embark on a cost-cutting initiative that will bring in about $2B in savings at the end of fiscal 2014.

How to Trade TEVA Options

From all indications, Teva will soon be turning the corner into sustainable profitability and the fact that the stock doesn’t look attractive now gives us an opportunity to snag up calls at a discount. You should seriously consider adding the TEVA Mar 2015 55.000 call (TEVA150320C00055000) at an asking price of $2.00.



— Daily Option Alerts

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