Teva Earnings Call: Innovation Offsets Generics and One-Offs

Teva Pharmaceutical Industries Limited ((TEVA)) has held its Q4 earnings call. Read on for the main highlights of the call.

Teva Pharmaceutical Highlights Innovation-Led Momentum Amid One-Off Boosts and Generics Headwinds in Earnings Call

Teva Pharmaceutical Industries’ latest earnings call struck a cautiously optimistic tone, with management emphasizing strong momentum in its innovative drug portfolio, improving margins, and steady deleveraging. While headline results were flattered by a large one-time milestone payment and the generics franchise showed signs of strain, executives argued that the underlying growth engine is shifting decisively toward higher-margin branded medicines and a more resilient balance sheet. Investors were reminded that near-term noise from inventory, gross-to-net dynamics, and patent cliffs will create volatility, but the company framed these as manageable bumps on a longer “Pivot to Growth” trajectory.

Revenue and Profit Growth: Solid Year, Boosted by Milestone

Teva reported full-year 2025 revenue of $17.3 billion, up 5%, with adjusted EBITDA climbing 12% to $5.3 billion and non-GAAP EPS jumping 19% to $2.93. Free cash flow improved roughly 16% to $2.4 billion. However, the headline growth figure included a $500 million development milestone from Sanofi tied to the duvakitug program; excluding this one-off, underlying growth was more modest, underscoring both the progress in profitability and the dependence on non-recurring items to lift the top line.

Innovative Portfolio Momentum: A New Growth Engine

Teva’s innovative products were the clear stars of the call. The combined sales of AUSTEDO, UZEDY and AJOVY reached $3.1 billion for the year, representing about 35% growth. AUSTEDO generated $2.26 billion, up 34%; UZEDY brought in $191 million, surging 63%; and AJOVY delivered $673 million, up 30%. Management presented these brands as the core of Teva’s transformation from a generics-heavy business to a more balanced, innovation-led portfolio, helping to diversify away from volatile commodity pricing and patent expirations.

AUSTEDO Performance: Flagship Asset Exceeds Expectations

AUSTEDO, Teva’s treatment for movement disorders, continues to outperform. Fourth-quarter sales hit $725 million, up 40% year over year, driven by 10% total prescription growth and a 19% increase in milligram volume. The extended-release formulation, AUSTEDO XR, now accounts for about 60% of new patients, supporting better adherence and higher revenue per patient. Management guided 2026 AUSTEDO sales to $2.4–$2.55 billion and suggested the upper end of that range—around $2.5 billion—could be achieved ahead of earlier expectations, cementing its status as Teva’s flagship growth driver.

UZEDY and AJOVY: Expanding the Specialty Franchise

Beyond AUSTEDO, schizophrenia drug UZEDY and migraine therapy AJOVY are gaining traction. UZEDY posted $55 million in Q4 revenue, up 28%, with prescription volume more than doubling (+123%), reflecting rapid uptake in a competitive long-acting injectable market. Teva is guiding UZEDY to $250–$280 million in 2026. AJOVY delivered $211 million in Q4 (up 43%) and $673 million for the full year (+30%), with 2026 guidance set at $750–$790 million. Together, these products deepen Teva’s footprint in central nervous system and migraine markets, supporting a more durable specialty revenue base.

Pipeline Catalysts and External Validation: 2026 as a Pivotal Year

The company flagged 2026 as a pivotal year for its pipeline, with several high-profile catalysts. These include the duvakitug maintenance trial readout in the first half, Phase II data for an anti-IL-15 antibody in vitiligo in the first half and in celiac disease in the second half, and completion of the DARI Phase III program by year-end. Teva has already submitted its olanzapine long-acting injectable in one major market and plans an EU filing, expanding its psychiatry offerings. Management underscored that external funding—such as the $500 million Sanofi milestone and support from Royalty Pharma—serves as third-party validation of the commercial and scientific potential of these assets.

Gross Margin Improvement: Mix Shift Paying Off

Teva’s profitability profile showed tangible improvement, with non-GAAP gross margin rising 80 basis points year on year in Q4 to 56.2%. For the full year, gross margin came in at 54.7%, exceeding prior guidance. Management attributed the improvement to the growing contribution from higher-margin innovative products and a favorable portfolio mix shift. Looking ahead to 2026, Teva guided gross margin to a still-elevated 54.5%–55.5%, signaling that the expansion is sustainable even as some high-margin Revlimid generics roll off.

Balance Sheet and Deleveraging: Steady Progress Toward Targets

On the balance sheet, Teva reported net debt of roughly $13 billion and a net debt-to-EBITDA ratio of 2.5x, moving closer to its target of 2.0x by 2027. Lower leverage, combined with improving business quality, has begun to show up in credit metrics: S&P upgraded the company and Moody’s improved its outlook. Finance expenses are projected to decline to about $800 million in 2026, freeing up more cash for growth investments and further deleveraging, and reinforcing Teva’s narrative of a more financially disciplined, lower-risk capital structure.

Transformation Savings and Biosimilars: Operating Leverage Ahead

Teva’s transformation program remains central to its margin story. The company is targeting $700 million in net savings by 2027, with $70 million already realized in 2025 and roughly two-thirds of the total expected by the end of 2026. In parallel, biosimilars are emerging as a meaningful contributor: Teva has 10 biosimilar assets currently on the market and plans six additional launches by 2027, with a goal of adding about $400 million in biosimilars revenue by that year. Management positioned these initiatives as key to funding innovation while driving operating leverage over time.

One-Time Milestone Dependency: Q4 Growth Not Fully Repeatable

The call highlighted that Q4’s robust 11% revenue growth was heavily influenced by the $500 million Sanofi milestone tied to duvakitug. Without this non-recurring payment, quarterly revenue was actually down about 1%, underscoring the challenge of sustaining top-line momentum purely from ongoing operations in the near term. Investors were cautioned not to extrapolate the Q4 growth rate, as future quarters will lack similar one-time boosts and will also absorb Revlimid-related headwinds.

Generics Business Pressure and Mixed Regional Trends

Teva’s generics franchise remains under pressure, with 2025 generics revenue essentially flat (excluding Japan) and marked by uneven regional performance. Over two years, generics posted a 6% compound annual growth rate, but the latest year saw only 2% growth in the U.S., 1% in international markets, and a 2% decline in Europe. Management acknowledged ongoing pricing pressure, competitive intensity and regional volatility, reinforcing why the strategic pivot toward higher-value branded and biosimilar products is critical for long-term growth.

Operating Margin Compression: Investing Behind Growth

Despite gross margin gains, Teva’s non-GAAP operating margin declined about 120 basis points year on year to 26.7% in 2025. The main driver was higher operating expenses, particularly in sales and marketing and R&D, as the company invests heavily to support its growing innovative franchise and advancing pipeline. Management framed this margin compression as a deliberate, temporary trade-off: spending now to build branded platforms that can later support higher sustained margins and cash generation.

Inventory and Gross-to-Net One-Offs: Q1 Setup Turned Tough

AUSTEDO’s strong Q4 was boosted by approximately $100 million in favorable one-time factors, including year-end inventory stocking and gross-to-net benefits. Teva warned that these tailwinds will unwind in the first quarter of 2026, likely causing sequential destocking and less favorable gross-to-net dynamics. This will complicate year-on-year comparisons and is one reason management expects a “light” Q1, even though underlying demand trends for AUSTEDO remain strong.

Non-GAAP Adjustments and Impairment: Clouding Earnings Clarity

The company recorded $649 million of non-GAAP adjustments in Q4, including a $77.3 million impairment relating to a European manufacturing facility. While management argued these items are non-core, their size reduces the transparency of adjusted earnings and may make it harder for some investors to assess normalized profitability. The impairment also underscores that Teva’s ongoing network optimization and footprint rationalization still come with restructuring and write-down costs.

Revenue Guidance and Headwinds: Revlimid Drag Dominates 2026

Teva’s 2026 revenue guidance of $16.4–$16.8 billion points to flat to slightly down performance versus 2025 on a like-for-like basis, once the $500 million milestone and Japan’s ~$75 million contribution are excluded. Management highlighted a roughly $1.1 billion headwind from the loss of generic Revlimid revenue in 2026 as a major drag on reported growth. Against that backdrop, the company is leaning on its expanding innovative portfolio and cost-saving initiatives to offset part of the shortfall, while accepting that aggregate sales may be largely plateaued in the near term.

Quarterly Volatility and Q1 Risks: Bumpy Near-Term Path

The near-term outlook is marked by considerable quarterly volatility. Q1 2026 is expected to be particularly soft due to the step-down in Revlimid, reversal of AUSTEDO’s Q4 stocking and gross-to-net benefits, and typical seasonal patterns. Management expects revenue to ramp through the year, with the second half stronger than the first. Additionally, they flagged a potential risk of AUSTEDO demand or channel behavior in Q4 2026 ahead of new pricing dynamics under U.S. policy changes, adding another layer of uncertainty to quarterly patterns even as the full-year trajectory remains intact.

Execution and Clinical Risk: Binary Outcomes for Key Programs

Teva was candid about the execution and clinical risk embedded in its high-profile R&D programs. While duvakitug, anti-IL-15, and emrusolmin represent significant upside if successful, their near-term readouts are binary events that could materially influence the company’s future revenue mix and valuation. Management singled out the Phase II emrusolmin program as particularly risky, underscoring that not all pipeline bets will pay off. Nonetheless, leadership argued that the diversified set of programs, coupled with external validation and funding, offers a favorable risk-reward balance.

Guidance and Outlook: Innovation to Offset Structural Headwinds

For 2026, Teva guided revenue to $16.4–$16.8 billion, non-GAAP gross margin of 54.5%–55.5%, operating expenses at roughly 27%–28% of revenue, non-GAAP EPS of $2.57–$2.77, and adjusted free cash flow of $2.0–$2.4 billion. Finance expenses should be about $800 million, with a non-GAAP tax rate of 16%–19%. Product-level guidance calls for AUSTEDO sales of $2.4–$2.55 billion, UZEDY at $250–$280 million, and AJOVY at $750–$790 million. Management expects a weak first quarter, followed by sequential improvement and a stronger second half as the business absorbs roughly $1.1 billion in Revlimid headwinds and the reversal of Q4 one-time benefits. Longer term, Teva reaffirmed its ambition to reach a 30% non-GAAP operating margin by 2027, deliver around $700 million in transformation savings by that time, and grow free cash flow toward more than $3.5 billion by 2030, while bringing net leverage down to about 2.0x.

Teva’s earnings call painted a picture of a company in the midst of a complex but credible transition: sliding off a major generic revenue peak while ramping up a higher-margin, innovation-led portfolio. The short term will be noisy, with one-time items unwinding, Revlimid revenues rolling off, and quarterly numbers swinging with pipeline milestones. Yet the combination of strong specialty brand momentum, improving gross margins, disciplined deleveraging and a robust slate of near-term clinical catalysts positions Teva as a more compelling long-term story for investors willing to look past the upcoming volatility.