Teva Pharmaceutical Industries’ (TEVA) third quarter earnings of $1.25 per American Depositary Share (ADS) were a couple of cents above the Zacks Consensus Estimate but 3.8% below the year-ago earnings. Once again, US generic sales remained soft.
While third quarter revenues increased 2% to $4.3 billion, revenues fell short of the Zacks Consensus Estimate of $4.5 billion. The company reported sales growth in Europe (34%), EEMA (56%), Latin America and Asia (49%). However, North America continued to disappoint with sales declining 20%. Currency fluctuations boosted total revenues by $148 million.
The Quarter in Detail
US generic sales remained weak in the third quarter. Sales in North America declined 20% to $2,183 million with US generic and other sales declining 48% to $845 million. The lack of major launches in the third quarter of 2011 and lower sales of key products affected performance.
The year-ago quarter benefited due to contributions from the generic versions of Pfizer’s (PFE) Effexor XR, Merck’s (MRK) Cozaar/Hyzaar and Boehringer Ingelheim’s Mirapex. Sales of these products fell to $58 million in the third quarter of 2011 from $560 million in the year-ago period. Teva, which has been finding it difficult to replace the contribution from these products, expects $350 million in combined sales of these products in 2011.
We expect the US generics business to bounce back later this year/early next year with sales benefiting from the exclusive generic launch of Eli Lilly’s (LLY) Zyprexa. Teva has partnered with Dr. Reddy’s Laboratories (RDY) for Zyprexa. Teva expects to recognize revenues of about $300 million from the generic Zyprexa opportunity. Other new product launches could boost revenues by an additional $100 million.
Key branded product Copaxone posted global in-market sales of $1,021 million, up 26%. While US in-market sales increased 28% to $752 million, ex-US in-market sales grew 22% to $268 million. US sales were driven by price increases and unit growth.
Other products/segments that contributed to growth were Azilect at $97 million, up 20%, and the women’s health business which recorded 6% growth with sales coming in at $123 million. The inclusion of sales of Theramex products helped drive growth in the women’s health business. US sales were weaker due to generic competition being faced by Seasonique from July 2011.
The global respiratory business posted sales of $238 million, up 15%. Performance was driven by strong sales in the US (up 30% to $164 million).
Pharmaceutical revenues in Europe increased 34% to $1,344 million. Results benefited from the inclusion of ratiopharm’s business. Teva’s acquisition of ratiopharm has helped the company strengthen its position in key European markets, especially Germany. European sales should continue improving in the coming quarters.
International (EEMA, Latin America and Asia) pharmaceutical revenues grew 56% during the quarter with sales coming in at $817 million. Increased sales in Russia and Latin America helped boost revenues. Moreover, sales benefited from the July 2011 Taiyo acquisition in Japan.
API sales increased 15% to $183 million.
Research & Development expense declined to $227 million from $239 million in the year-ago period. Lower legal expenses related to generic R&D and timing of spending led to the decline. Meanwhile, Selling and Marketing (S&M) expenditures increased to $796 million from $742 million mainly due to the inclusion of ratiopharm, Taiyo and Theramex.
Updated 2011 Guidance
The company updated its 2011 guidance to reflect the impact of the October 2011 acquisition of Cephalon. The updated guidance also reflects the weak performance of the company’s US generics business.
Teva expects 2011 earnings in the range of $4.92 to $5.02 on revenues of $18.3 billion to $18.6 billion. Earlier, the company was expecting to earn $4.90 to $5.20 on revenues of $18.5 billion to $19 billion. The updated guidance includes a 15 cent contribution from the Cephalon acquisition.
Teva said that it would be able to achieve the lower end of its new guidance range even if it is unable to gain approval and launch an important undisclosed generic product in the fourth quarter. The Zacks Consensus Earnings Estimate for 2011 currently stands at $5.04.
Teva expects to earn $1.53 – $1.63 on revenues of $5.7 billion to $6 billion in the fourth quarter of 2011. The Zacks Consensus Earnings Estimate for the fourth quarter of 2011 currently stands at $1.65.
Neutral on Teva
We currently have a Neutral recommendation on Teva, which carries a Zacks #3 Rank (short term Hold rating).
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