Teva Pharmaceutical Industries Ltd. (TEVA) reported earnings of 89 cents in the third quarter of 2009, up 16% from the year-ago period and a cent above the Zacks Consensus Estimate. Strong sales of Copaxone and in the respiratory business helped drive earnings in the reported quarter.

Net sales increased 25% to $3.55 billion, with the Barr acquisition contributing to sales across different geographical segments. The strengthening U.S. dollar adversely impacted net sales by $160 million or 6%.

Revenue performance across key business segments was mixed. While the Pharmaceuticals Sales segment posted growth of 27% with revenues coming in at $3.4 billion, the active pharmaceutical ingredients (API) segment reported an 8% decline in growth with sales coming in at $136 million.

Pharmaceutical segment sales were driven by strong performances in the North American, European and International segments. The launch of generic versions of Ortho Tri-Cyclen Lo and Eloxatin and continued strong sales from existing products like generic versions of Adderall XR, Yasmin and Protonix helped North America sales grow 34% to $2,164 million.

Meanwhile, key branded product Copaxone continued to impress with global in-market sales increasing 38% to $776 million. While U.S. in-market sales increased 53% to $540 million, ex-U.S. in-market sales totaled $236 million, up 12%. Unfortunately, Mylan (MYL) is looking to launch a generic version of Copaxone.

Other products/segments that contributed to growth were Azilect at $64 million, up 39%, women’s health business at $103 million, up 10%, and the global respiratory business at $243 million, up 37%.

We expect the North American pharmaceutical segment to continue posting strong sales going forward. The company has a strong pipeline of products, and as of October 23, 2009 had 210 abbreviated new drug applications (ANDAs) awaiting U.S. Food and Drug Administration (FDA) approval. These represent more than $113 billion in branded sales. About 136 of these ANDAs are paragraph IV challenges including approximately 83 first to file opportunities representing more than $54 billion in branded sales. The launch of Effexor XR in July 2010 should help drive sales.

Pharmaceutical sales in Europe increased 15% to $787 million, mainly due to strong generic sales in Germany, Spain and Poland. International pharmaceutical sales grew 14% to $463 million, driven by increased sales in Russia, Croatia, Israel and certain countries in Latin America.

Gross margin improved to 58.2% (up from 54% in the year-ago period) thanks to higher contributions from innovative and branded products, including Copaxone, ProAir, Azilect and women’s health products, and improved gross margins of the U.S. generics base business.

Research & Development expense remained relatively unchanged at $195 million. We expect R&D expense to increase as the company delivers on its plans to double its generic R&D output from its 2007 level by 2012. Teva also intends to expand R&D activity in biogenerics and its innovative and branded franchises.

Selling and Marketing (S&M) expenditures (excluding amortization of purchased intangible assets) increased 36.5% to $662 million mainly due to higher royalty payments on higher Copaxone revenues and the addition of Barr’s business which is characterized by higher S&M expenses.

General and Administrative (G&A) expenditures totaled $212 million, or 6.0% of sales, for the third quarter, compared with $156 million, or 5.5% of sales, in the comparable quarter of 2008.

Based on its performance in the first nine months of 2009, Teva raised the lower end of its previously issued earnings guidance by 10 cents. The company now expects earnings in the range of $3.30 to $3.40, up from the previous range of $3.20 to $3.40. For 2010, the company expects earnings in the range of $4.40 and $4.60.
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