Third quarter revenues increased 14% to $5.00 billion, shy of the Zacks Consensus Estimate of $5.06 billion.
The Quarter in Detail
Teva reported sales growth in the US (33%) and Europe (1%). Revenues, however, declined in RoW (3%). Currency fluctuations negatively impacted total revenues by $202 million.
Sales in the US grew 33% to $2.6 billion in the reported quarter, boosted by the inclusion of Cephalon and the strong performance of branded and generic products.
The US generic business continues to show signs of improvement with sales increasing 24% to $1.1 billion. Sales benefited from the launch of nine new products and the continued strong performance of products launched in the first half of 2012. So far in 2012, Teva has launched 20 new generic products targeting branded sales of $23 billion. About ten additional generic product launches are slated for the fourth quarter.
Important launches in the third quarter included the launch of Teva’s generic versions of Takeda’s Actos and Actoplus Met.
Branded product revenues increased 38% to $2.0 billion in the third quarter of 2012. Revenues benefited from the inclusion of Cephalon products - Treanda ($160 million) and Nuvigil ($94 million). However, Provigil sales ($53 million) declined significantly due to generic competition. Copaxone sales also remained strong.
Key branded product Copaxone posted global in-market sales of $1.05 billion, up 13%. Sales benefited from the take-back of distribution and marketing rights in Europe from Sanofi (SNY) and stronger sales in RoW.
Other products that contributed to growth were Azilect at $77 million, up 8%. Meanwhile, respiratory segment sales declined 4% to $201 million and the women’s health business sales declined 22% to $96 million.
Revenues in Europe increased 1% to $1.4 billion. Although revenues were positively impacted by the inclusion of Cephalon products, macro-economic conditions and healthcare reforms in key European markets continued to impact sales.
Negative currency movement also impacted third quarter 2012 sales. European generic revenues of $798 million declined 13% from the year-ago period. Teva is working on improving its diversity, reach and flexibility in Europe.
RoW (Rest of the World including Canada, Israel, certain markets in Eastern Europe, Latin America and Asia) revenues slipped 11% during the quarter with sales coming in at $620 million. Although performance was strong in Israel, Russia, and other Eastern European markets, Canada recorded a decline in generics sales. Performance was also impacted by government-imposed price reforms and a slight decline in market share.
API sales increased 4% to $195 million. OTC revenues increased 38% to $252 million. Teva has a partnership agreement with Procter & Gamble (PG) targeting the consumer health care market.
Research & Development expense increased to $319 million from $227 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 fourth quarter.
Meanwhile, Selling and Marketing (S&M) expenditures increased to $903 million from $796 million mainly due to the inclusion of Cephalon and the take-back of Copaxone rights in Europe.
The company did not buy back any shares during the quarter. Teva has a $3 billion share buyback program which was announced in December 2011. We are positive on the company returning value to shareholders.
Tightens 2012 Outlook
Teva now expects earnings of $5.32 - $5.38 per ADS on total net sales of $20.1 - $20.7 billion in 2012. Earlier, the company was expecting 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 share on revenues of $20.5 billion.
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 through the remainder of 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. We expect investor focus to remain on the upcoming Investor Day on December 11 when more information regarding the pipeline will be provided. The company is also planning to provide its outlook for 2013.
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