Teva Pharmaceutical Industries

Teva delivered $4.1 billion in revenue, a 1% year-over-year decline but above FactSet consensus by 4%, and $0.02 in adjusted EPS during the second quarter. Shares are up 9% in early trading.

Why it matters: The robust momentum in Teva's innovation engine continues to impress us, with the key portfolio—made up of Austedo, Ajovy, and Uzedy—up 44%, driven by strong performance across all three drugs. We had a favorable outlook heading into the quarter, but results exceeded our already-high expectations. Outlook for all three innovative drugs was raised by a low-single-digit percentage, underpinned by strong performance in the first half of 2026. This not only helps fuel revenue growth but also drives meaningful margin expansion, since branded drugs are margin-accretive to the base generics business. Generics was down 13%, with generic lenalidomide headwinds in the US being the main drag. We expect this dynamic to continue playing out throughout the year, but normalized year-over-year comparisons to return in 2027. We continue to expect Teva's generics to grow at a low-single-digit rate over the long term.

The bottom line: We maintain our $42 fair value estimate for Teva, which is the top pick across our generics manufacturer coverage. Our valuation suggests 13.6 times EV/2026 adjusted EBITDA. Shares look undervalued, with 20% upside. We increased our moat rating for Teva to narrow from none in May 2026 to reflect our improved conviction in the pipeline and long-term earnings power. We see this quarter's results as another example of the progress Teva has made over the past few years and expect strong performance during the second half of 2026. Key pipeline advancements during the quarter include the new drug application filing of ecopipam, which was acquired earlier this year, and the initiation of trials for two additional indications for duvakitug. These don't materially change our near-term outlook but support our long-term favorable view on Teva's innovation.

For more information on the moat rating and our valuation for Teva, please see our July 2026 report, "Teva: Market Fails to Realize Long-Term Value From Innovation." For more information on our comments on the recently announced tariffs, please see our July 2026 note, " Generics Industry: New Tariff Announcement Heightens Uncertainty."

We maintain our $42 fair value estimate for narrow-moat Teva.

We model $16.6 billion in revenue and $2.05 adjusted earnings per share for 2026, both around the midpoint of guidance. The exclusion of the Sanofi milestone and roughly $1.1 billion in headwinds from lenalidomide volume are the main drags on revenue. That said, we expect the three key innovative brands to deliver double-digit growth this year. We expect the firm's adjusted EBITDA margin to land at 26%, about 450 basis points lower than in 2025, as the recently announced acquisition of Emalex creates a $750 million accounting-related drag on the line.

Over the long term, we model 3% and 5% CAGRs for revenue and EPS, respectively, over our 10-year forecast period. By far the biggest revenue and margin driver over the next 10 years for Teva is its innovative drug portfolio. Since 2018, Teva has launched Ajovy, Austedo, and Uzedy, and the three innovative assets collectively brought $3.1 billion in revenue, or 18% of total revenue, in 2025. Ajovy, launched in 2018, generated $673 million globally in 2025, and we expect midteens growth with significant sales reduction when generic equivalents enter the market, in our view, in 2030. Austedo and Uzedy are not expected to face any generic competition during our explicit forecast period, so we model healthy growth rates for both drugs throughout our forecast. Outside of commercial branded drugs, Teva's pipeline is deep and promising. We expect TEV-'749 (schizophrenia), TEV-'248 (asthma), and TEV-'574 (Crohn's disease and ulcerative colitis) to launch over the next five years and meaningfully boost the top and bottom line. We think the portion of Teva's revenue coming from innovative assets should rise from 18% in 2025 to roughly 33% by 2035. And since branded drugs carry higher margins compared with generic drugs, we expect Teva's product mix improvement to drive a moderate margin expansion year over year.

We also expect tailwinds from Teva's biosimilars business. Biosimilars have been seen as a growth engine for large, capable generic drug manufacturers because of comparatively higher price durability exhibited after launch and fewer competing manufacturers. Teva ended 2025 with 10 biosimilars in market, including generic equivalents of Humira, Stelara, and Rituxan. It also has a strong late-stage pipeline of future assets. We believe Teva can capture significant value from its biosimilar products upon commercialization. While we expect stiff competition in these blockbuster reference drugs from other drug manufacturers, we still foresee opportunities in this space that Teva can carve out for itself.

After a fresh look, we upgraded Teva’s Morningstar Economic Moat Rating to narrow from none in May 2026. In our view, Teva’s improving product mix, pipeline progression, astute capital-allocation strategies, and solid management over the past four years have all played a part in turning the company around and improving its financial outlook. We think Teva enjoys solid returns from intangible assets and is well-positioned to generate above-WACC ROICs over the next 10 years.

After suffering consecutive year-over-year sales declines since 2017, Teva posted its first revenue growth in 2023. The main driver, in our opinion, is Teva’s new strategy of shying away from small-molecule generics and instead focusing on innovative drugs across several therapeutic areas, including neurology, immunology, and respiratory. Its pipeline looks strong, with promising candidates in schizophrenia, inflammatory bowel disease, and asthma.

We think Teva’s moat protection comes from its innovative products. At the end of 2025, key assets in Teva’s commercial branded portfolio include Ajovy (migraine), Austedo (TD/HD), and Uzedy (schizophrenia). Innovative drugs have much more favorable financials than generic drugs; by our analysis, Teva’s innovative business generates high-30s to low-40s EBITDA margins, compared with the generics business’s high-20s EBITDA margins. Teva has leaned into its innovative portfolio, delivering double-digit year-over-year growth over the past five years and growing it from a sub-5% share of the business in 2020 to 18% at the end of 2025. With current commercial assets and upcoming launches, we expect innovative brands to make up over 35% of Teva’s total sales by 2035. This portfolio improvement drives both top-line growth and margin expansion, as Teva’s patent-protected assets continue to see patient uptake and carry higher margins than generics. Among the three key commercial assets, Ajovy is likely to be the first candidate to face generic competition, starting in 2030. Austedo’s main patents expire in the early 2030s, but Teva launched Austedo XR in 2023 and has since been gradually moving existing and new patients to the extended-release formulation. Austedo XR’s patents expire between 2031 and 2041, so we think there is still plenty of runway for growth contribution from this asset during our forecast period. Uzedy launched in 2023, and we don’t expect it to face meaningful competition until the mid-2030s.

Teva’s pipeline also looks fruitful, with a number of assets expected to come to market over the next five years. Olanzapine (schizophrenia) should bolster Teva’s neurology portfolio, and we expect it to launch late 2026/early 2027. The albuterol/fluticasone combination is an asthma treatment that we expect to come to market in late 2028/early 2029. Duvakitug is an anti-TL1A drug being co-developed with Sanofi and is in clinical trials for Crohn’s disease and ulcerative colitis. We think this drug could launch in late 2030. Management expects these three drugs to have combined peak sales of $8 billion, and we expect them to collectively generate $4 billion of revenue in 2035.

Portfolio improvements from continued uptick of commercial branded drugs and launch of pipeline assets should bolster Teva's top and bottom lines for the next decade.

Reallocating resources from small molecule generics to more attractive areas such as complex generics, innovative drugs, and biosimilars offers significant margin expansion opportunities.

Biosimilars are poised to show promising growth as many blockbuster biologics lose their patents in the next five years. Teva is well positioned to enjoy this trend with its pipeline.

The majority of Teva's business lies in generic and off-patent branded drugs, which faces price and volume pressures that will be exacerbated as regulatory actions and other players in the drug supply chain exert force.

As an increasing share of revenue is generated by branded drugs, Teva faces heightened competition from large biopharmas, which typically have greater resources and deeper experience in key therapeutic areas.

Failure to maintain a solid pipeline with promising launches will hurt Teva’s growth opportunities.