Teva Pharmaceutical Industries Ltd. (TEVA) reported second quarter 2014 earnings of $1.23 per American Depositary Share (ADS), up 2.5% from the year-ago period. The Zacks Consensus Estimate was $1.23.
Second quarter revenues grew 2.6% to $5.045 billion, slightly below the Zacks Consensus Estimate of $5.078 billion. Currency fluctuations boosted total revenues by $16 million.
Quarter in Detail
The U.S. generics business posted revenues of $1.1 billion, up 10%. Sales benefited from a full quarter contribution from the exclusive generic version of Xeloda as well as the launch of the generic version of Lovaza. Teva also recorded higher sales on its generic versions of Evista and Detrol. Meanwhile, Teva recorded a decline in sales of its generic version of Adderall.
Specialty product revenues decreased 1% to $2 billion in the second quarter of 2014 reflecting lower Copaxone sales in the U.S. Meanwhile, products like Treanda ($190 million, up 7.3%) and Azilect ($103 million, up 18%) performed well.
Worldwide Copaxone revenues declined 12% to $939 million. While sales in the U.S. fell 19% to $662 million due to lower volume that was partially offset by a Jan 2014 price increase of 9.9%, ex-U.S. sales grew 9% to $277 million reflecting lower mandatory rebates and higher demand in certain European markets.
Sales in the U.S. were affected by inventory buildup of the 20mg formulation in the previous quarter following the launch of the 40 mg thrice-weekly (3TW – three times a week) formulation and inventory reduction in anticipation of generic competition.
Teva has switched 51% of Copaxone patients to the new formulation.
Meanwhile, respiratory segment revenues grew 7% to $257 million. The women’s health business recorded revenues of $128 million, up 8%.
European generic revenues of $814 million declined 2% from the year-ago period.
RoW (Rest of the World including Canada, Israel, certain markets in Eastern Europe, Latin America and Asia) revenues climbed 4% during the quarter to $633 million.
API revenues decreased 4% to $182 million. OTC revenues grew 7% to $274 million reflecting higher sales in Europe.
Research & Development expense increased to $344 million from $336 million in the year-ago period. Meanwhile, Selling and Marketing (S&M) expenditures declined to $914 million from $973 million in the year-ago period.
2014 Outlook Updated
Teva, which could start facing generic competition for its key branded drug, Copaxone, updated its guidance for the year. The company provided guidance for both scenarios – Copaxone remaining exclusive and Copaxone going generic.
In the event of Copaxone remaining exclusive, Teva continues to forecast total revenues in the range of $19.8 billion – $20.8 billion this year. However, in this scenario, the company is now guiding towards earnings in the range of $4.90 – $5.10 (earlier guidance: $4.80 – $5.10).
But if generics enter the market in August, earnings will go down to $4.50 to $4.80.
The Zacks Consensus Estimate is currently $4.90 per ADS.
Teva remains committed to cutting costs – it remains on track to deliver gross savings of $1 billion by year end and $2 billion by the end of 2017.
Our Take
Teva is going through a transition period and 2014 will be a challenging year for the company. While the company’s new strategy looks good, execution remains the key.Headwinds include new competition for branded products and fewer generic product launches. We are encouraged by Teva’s efforts to delay the entry of generic Copaxone. The Copaxone appeal hearing in the Supreme Court is scheduled for Oct 15 with a ruling expected this fall or early next year.
Teva currently carries a Zacks Rank #2 (Buy). Some better-ranked companies in the health care sector include Mallinckrodt plc (MNK), Allergan (AGN) and AstraZeneca (AZN). All three are Zacks Rank #1 (Strong Buy) stocks.
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