Teva Pharmaceutical Industries Ltd. Earnings Are a Mixed Bag

The world's largest generic and specialty drugmaker Teva Pharmaceuticals posted its fourth-quarter and full-year numbers this morning. According to the release, the company posted $1.31 in non-GAAP diluted EPS for the three-month period, and $5.07 for the full-year. Both of these figures are in-line with consenus.

Turning to revenue, Teva generated $5.2 billion during the quarter and $20.3 billion for the year. Again, these numbers are essentially dead even with consensus.

Given that Teva is a top name in the healthcare sector, let's take a deeper look at the quarter and consider whether this dividend stock belongs in your portfolio.

Generic drugs were a mixed bag

Although generic drug revenues fell by nearly 8% for the quarter, compared to a year ago, to $2.47 billion, profitability in the segment rose by a healthy 9.1% to $561 million. This marked increase in profitability was the result of an 18.8% decrease in expenses within the segment, namely Sales & Marketing and Research & Development.

Digging into the details, we learned that U.S. sales were buoyed mainly by the launch of generic Lovaza, resulting in total sales remaining flat at $1.2 billion for the year.

European generic drug sales, though, tanked during the quarter by a hefty 16% to $759 million, reflecting the impact of Teva's focus on sustainable growth in the region and unfavorable currency exchanges due to a strong U.S. dollar.

Rest of the World (ROW) sales also slumped in the fourth-quarter, falling by 12% to $532 million.

Specialty medicines save the day

Like Teva's last few quarters, specialty medicines proved to be the company's primary growth driver, and perhaps its saving grace. Per the report, specialty medicine revenues came in at $2.2 billion for the quarter, representing a 1% increase over the same period a year ago (5% if the impact of local exchange rates are excluded).

But like its generics business, profitability among specialty drugs also rose for the three-month period (3% to be exact), mainly due to lower R&D costs.

Source: Wikimedia

The one surprise in Teva's specialty medicines business was the 2% year-over-year drop in revenue for its flagship MS drug Copaxone. While the drug still generated a stately $1.121 billion for the quarter, this slide has to be concerning for investors, given that this single drug composes about 50% of total specialty drug sales at present.

On the bright side, the drug's sales are still growing at a respectable clip in the U.S. (up 4% compared to a year ago in the fourth-quarter). And the bulk of this decline in revenue appears to stem from the negative impact of unfavorable currency exchanges in ex-U.S. markets.

Source: Teva

A deeper look at the numbers also shows that most of the growth within specialty medicines for the quarter came from the cancer drug Treanda. Treanda posted a whopping 28% increase in sales in the fourth-quarter, relative to a year ago, generating $226 million in revenue.

With Women's Health and Respiratory medicines seeing their sales erode in a big way during the quarter, Teva may have to rely even more heavily on its oncology business to continue growing its top and bottom-lines going forward.

Should you buy Teva on the back of its fourth-quarter earnings?

Because of the strong U.S. dollar and falling sales for multiple products launched prior to 2014, Teva isn't expected to grow its bottom-line much this year. In fact, management reconfirmed its meager 2015 annual guidance today, meaning that under the best case scenario, EPS is anticipated to grow by less than 1% for the full-year.

Then again, this stock has long been undervalued, in relation to its peers, because of the concern of generic Copaxone hitting the market after September when the drug's patent expires. Teva has been furiously attempting to block the entry of generic rivals in the courts, and has had some initial success in this effort with a favorable ruling in the Supreme Court -- although generic Copaxone will undoubtedly enter the market at some point.

Because Copaxone makes up the lion's share of the company's revenues and generics should enter the market sometime soon, this stock looks like a value trap. Bulls are sure to point to management's efforts at switching patients over toward a different formulation of the drug, but payers will probably have the final say once generics are launched. Since there is no difference in efficacy in the new formulation - -only the convenience factor of fewer doses -- it's hard to see payers willingly approving the branded version over generics.

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George Budwell has no position in any stocks mentioned. The Motley Fool recommends Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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