Teva Beats, Maintains Outlook – Analyst Blog

Teva Pharmaceutical Industries’ (TEVA) first quarter earnings of 91 cents per American Depository Share (ADS) was well above the Zacks Consensus Estimate of 89 cents and the year-ago earnings of 71 cents. Teva’s top-line performance remained strong with revenues increasing 16% to $3.7 billion. Strong sales of Copaxone and generics helped drive revenues.

Revenue performance across key business segments was mixed. While the Pharmaceuticals segment performed well thanks to strong performances in the North American, European and international segments, the Active Pharmaceutical Ingredients (API) segment reported a 13.7% decline in growth with sales coming in at $139 million.

Pharmaceutical segment revenues were driven by strong performances in the North American, European and international segments. The launch of a generic version of Mirapex and continued strong sales from existing products like generic versions of Pulmicort Respules, Adderall XR, Accutane, and Eloxatin helped North American revenues grow 20% to $2,309 million.

Meanwhile, key branded product, Copaxone, continued to impress with global in-market sales increasing 28% to $796 million. While US in-market sales increased 19% to $513 million, ex-US in-market sales totaled $283 million, up 48%. Unfortunately, Mylan (MYL) is looking to launch a generic version of Copaxone.

Teva is currently seeking approval for a new formulation of Copaxone which could hit the market early next year.

Other products/segments that contributed to growth were Azilect at $77 million, up 40%, and the global respiratory business at $193 million, up 4%. The women’s health business, however, declined 18.6% to $79 million mainly due to weak Plan B One-Step sales.

We expect the North American pharmaceutical segment to continue posting strong revenues going forward. The company has a strong pipeline of products and as of Apr 26, 2010, had 210 abbreviated new drug applications (ANDAs) awaiting US Food and Drug Administration’s (FDA) approval, representing more than $113 billion in branded sales. About 133 of these ANDAs are paragraph IV challenges including approximately 83 first to file opportunities representing more than $50 billion in branded sales.

Pharmaceutical revenues in Europe increased 22% to $812 million, mainly due to increased sales of Copaxone and Azilect and strong generic sales in Portugal, Italy and Poland. International pharmaceutical revenues grew 15% to $532 million, driven by increased sales in Israel and Russia. Teva’s acquisition of ratiopharm, scheduled to close later this year, should help the company strengthen its position in key European markets, especially in Germany, the second largest generic market in the world, which is valued at approximately $8.8 billion.

Teva should also gain a strong foothold in rapidly growing generic markets like Spain, Italy and France. The company expects this acquisition to increase sales from its European business, from sales of $3.3 billion in 2009 to joint pro forma sales of $5.2 billion.

Research & Development expense declined slightly to $207 million. Meanwhile, Selling and Marketing (S&M) expenditures (excluding amortization of purchased intangible assets) increased 25% to $744 million mainly due to higher royalty payments on higher Copaxone revenues and newly launched generic products in the US. S&M expenses should go down as Teva has stopped making royalty payments to Sanofi-Aventis (SNY) on Copaxone sales in North America from Apr 1, 2010.

General and Administrative expenditures totaled $182 million, or 5% of revenues, for the first quarter, compared with $196 million, or 6.2% of revenues, in the year-ago quarter.

Teva maintained its financial guidance for 2010 and stated that the guidance included the impact of US healthcare reform. The company expects to earn $4.40 – $4.60 on revenues of $16 billion.

We currently have a Neutral recommendation on Teva. While we expect the company to continue performing well thanks to new product launches, both generic and branded, we remain concerned about the intense competition and pricing pressure in the generics market. Moreover, the Copaxone patent challenge remains a matter of concern.