Teva Pharmaceutical Industries’ (TEVA) first quarter earnings of $1.47 per American Depositary Share (ADS) were 3 cents above the Zacks Consensus Estimate and 41% above the year-ago earnings.
First quarter revenues increased 25% to $5.1 billion, missing the Zacks Consensus Estimate of $5.6 billion. The company said that it is working on streamlining some of its commercial arrangements in the U.S., which are expected to benefit the company in the near and mid-term. The company is renegotiating certain distribution service agreements in the U.S. so as to establish a new fee structure. However, Teva reported that the implementation of these changes negatively impacted first quarter 2012 revenues by $180 million.
The Quarter in Detail
The company reported sales growth in RoW (21%) and the U.S. (46%). Revenues, however, declined in Europe (down 2%). Currency fluctuations negatively impacted total revenues by $81 million. Teva expects foreign currencies to continue to negatively impact 2012 sales by about $650 – $700 million.
Sales in the U.S. grew 46% to $2.8 billion in the reported quarter, boosted by the inclusion of Cephalon and the strong performance of branded and generic products. The company launched seven new products in the first quarter of 2012.
U.S. generic sales rebounded with sales increasing 29% to $1.2 billion. Sales benefited from the launch of several new products including the exclusive generic launch of Eli Lilly’s (LLY) Zyprexa. Teva has partnered with Dr. Reddy’s Laboratories (RDY) for Zyprexa. Another important product launch was that of a generic version of Pfizer’s (PFE) Lipitor. Teva has an agreement with Ranbaxy regarding generic Lipitor. The performance of the U.S. generics segment should continue improving.
Branded product revenues increased 54% to $2.1 billion in the first quarter of 2012. Revenues benefited from the inclusion of Cephalon products – Provigil ($291 million), Treanda ($148 million) and Nuvigil ($84 million).
Key branded product Copaxone posted global in-market sales of $941 billion, up 4%. Other products/segments that contributed to growth were Azilect at $96 million, up 7%, the global respiratory business ($190 million, up 4%), and the women’s health business ($108 million, up 5%).
Revenues in Europe declined 2% to $1.3 billion. Although revenues were positively impacted by the inclusion of Cephalon products and the strong performance of branded products especially Copaxone, generic sales were impacted by the macro-economic conditions and healthcare reforms in key European markets. European generic revenues declined 15% to $775 million.
RoW (Rest of the World including Canada, Israel, certain markets in Eastern Europe, Latin America and Asia) revenues grew 21% during the quarter with sales coming in at $1 billion. Increased sales in Eastern Europe, Latin America and Israel helped boost revenues. Moreover, sales benefited from the Taiyo and Cephalon acquisitions.
API sales increased 8% to $199 million. OTC revenues increased 7% to $196 million. Teva has a partnership agreement with Procter & Gamble (PG) targeting the consumer health care market.
Research & Development expense increased to $292 million from $239 million in the year-ago period. The inclusion of Cephalon was the main reason for the increase.
Meanwhile, Selling and Marketing (S&M) expenditure increased to $916 million from $825 million mainly due to the inclusion of Cephalon, Taiyo and Theramex.
The company repurchased 11.9 million shares during the quarter. Teva has a $3 billion share buyback program which was announced in Dec 2011. We are positive on this program which will return value to shareholders.
No Visibility on 2012 Outlook
The company refrained from providing an outlook on 2012 and did not reaffirm its previously issued 2012 guidance. The new CEO, Dr. Jeremy Levin, intends to review the business before giving any guidance or insight on future plans for the company. We expect an update later this year. The Zacks Consensus Estimate for 2012 currently stands at $5.61 per share.
Neutral on Teva
We currently have a Neutral recommendation on Teva, which carries a Zacks #3 Rank (short-term ‘Hold’ rating). Although the company’s first quarter earnings exceeded expectations, revenues were short of expectations. Moreover, the lack of visibility regarding 2012 outlook is disappointing.
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