Teva Pharmaceutical Industries'
) second quarter earnings of $1.28 per American Depositary Share
(ADS) were a penny below the Zacks Consensus Estimate but 16.4%
above the year-ago earnings.
Second quarter revenues increased 18.6% to $4.99 billion, shy of
the Zacks Consensus Estimate of $5.09 billion.
The Quarter in Detail
Teva reported sales growth in RoW (30%) and the US (28%).
Revenues, however, remained flat in Europe. Currency fluctuations
negatively impacted total revenues by $236 million. Teva expects
foreign currencies to continue to negatively impact 2012 sales.
Sales in the US grew 28% to $2.5 billion in the reported
quarter, boosted by the inclusion of Cephalon and the strong
performance of branded and generic products. The company launched
four new generic products in the second quarter of 2012.
The US generic business continues to show signs of improvement
with sales increasing 16% to $1.1 billion. Sales benefited from the
launch of four new products and the continuing strong performance
of products launched in the first quarter of 2012.
Important launches in the first quarter included the launch of
Teva's generic versions of Provigil,
) Lexapro and
) Zyprexa, among others. The performance of the US generics segment
should continue improving.
Branded product revenues increased 37% to $1.9 billion in the
second quarter of 2012. Revenues benefited from the inclusion of
Cephalon products Treanda ($139 million) and Nuvigil ($91 million).
However, Provigil sales ($48 million) declined significantly due to
Key branded product Copaxone posted global in-market sales of
$982 billion, up 12%. Sales benefited from the take back of
distribution and marketing rights in Europe from
) and stronger sales in RoW.
Other products that contributed to growth were Azilect at $95
million, up 36%. Meanwhile, respiratory segment sales
declined marginally to $209 million and the women's health business
sales declined 6% to $112 million.
Revenues in Europe remained flat at $1.5 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.
Negative currency movement also impacted second quarter 2012
sales. European generic revenues of $884 million, while down 12%
from the year-ago period, were up on a sequential basis.
Teva received some good news on the Copaxone patent infringement
lawsuit front recently with favorable court rulings in the UK and
the US. With these rulings, Copaxone should be protected from
generic competition until September 2015.
RoW (Rest of the World including Canada, Israel, certain markets
in Eastern Europe, Latin America and Asia) revenues grew 30% during
the quarter with sales coming in at $1.1 billion. Increased sales
in Russia and other countries in Eastern Europe, Latin America and
Israel helped boost revenues. Moreover, sales benefited from the
Taiyo and Cephalon acquisitions.
API sales increased 9% to $200 million. OTC revenues increased
21% to $219 million. Teva has a partnership agreement with
Procter & Gamble
) targeting the consumer health care market.
Research & Development expense increased to $298 million
from $243 million in the year-ago period. The inclusion of Cephalon
was the main reason for the increase. The company said that it
expects R&D expenses to increase in the second half of
Meanwhile, Selling and Marketing (S&M) expenditures
increased to $973 million from $794 million mainly due to the
inclusion of Cephalon and Taiyo and the take-back of Copaxone
rights in Europe.
The company repurchased 3.5 million shares during the quarter.
Teva has a $3 billion share buyback program which was announced in
Dec. 2011. We are positive on the company returning value to
Maintains 2012 Outlook
Teva expects earnings of $5.30 - $5.40 per ADS on total net
sales of $20 - $21 billion in 2012. The Zacks Consensus Estimate
currently stands at $5.36 per ADS.
The company expects to generate $10.5 billion sales in the US
with the EU and Rest of the World (RoW) generating sales of $5.8
billion and $4.2 billion, respectively. The major chunk of revenues
($10.7 billion) will be provided by the generics business
(including API sales).
Teva's US generics business is expected to deliver sales of $4.6
billion in 2012. Performance in the EU will continue to be affected
by macro-economic conditions, currency fluctuations and healthcare
reforms. The EU generics business is expected to deliver revenues
of about $3.4 billion. RoW generic product sales are expected to be
about $2.7 billion.
Meanwhile, branded products are expected to contribute $8.0
billion to the top line, with multiple sclerosis drug Copaxone
contributing $3.8 billion.
While Women's Health products are expected to contribute $500
million to revenues, ProAir HFA is expected to generate revenues of
$430 million. QVAR and Azilect are slated to post revenues of $350
million and $340 million, respectively. Finally, OTC sales are
expected to be about $1 billion. Other net sales are also expected
to be about $800 million.
Teva expects to spend between 6.8% to $7.2% of net sales on
R&D. Selling & marketing expenses (including royalties of
about $400 million) are expected to range between 18% and 20% of
net sales. General and administrative expenses are expected in the
range of 5.4% - 6.0% of net sales.
While the third quarter is expected to be lighter on a
sequential basis, the company expects to the fourth quarter to be
strong. Teva will provide an update on its strategic plan in
Neutral on Teva
We currently have a Neutral recommendation on Teva, which
carries a Zacks #3 Rank (short-term Hold rating). We expect EU
sales to remain weak throughout the year.
Longer-term, the Cephalon acquisition should help Teva expand
and strengthen its branded and specialty pharma business. Moreover,
the favorable Copaxone ruling is a major win for the company and
should do away with any concerns regarding near-term generic
competition for the product.
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