Teva Beats on Earnings, Revenues
Teva Pharmaceutical Industries (TEVA) reported first quarter earnings of $1.12 per American Depositary Share (ADS), a couple of cents above the Zacks Consensus Estimate but 23.8% below the year-ago earnings.
First quarter revenues declined 3.9% to $4.9 billion, just above the Zacks Consensus Estimate of $4.8 billion.
The Quarter in Detail
Teva reported revenue growth only in Europe (up 11%) in the reported quarter. Revenues declined in the US (down 11%) and RoW (down 3%). Currency fluctuations negatively impacted total revenues by $35 million.
Revenues in the US fell 11% to $2.4 billion in the reported quarter, mainly due to the genericization of Provigil in 2012 and higher generic revenues in the year-ago quarter.
The US generic business posted revenues of $895 million, down 27%. Revenues in the year-ago quarter were much higher due to major launches in that quarter. The first quarter of 2013 saw Teva launching its generic version of TriCor. 23 generic launches are slated for 2013.
Specialty product revenues remained flat at $2.1 billion in the first quarter of 2013. Revenues were negatively impacted by the genericization of Provigil which posted revenues of $24 million, down 92% from the year-ago quarter. However, the negative impact of the genericization of Provigil was offset by the strong performance of products like Treanda ($171 million, up 16%), Copaxone ($1.1 billion, up 17%) and Azilect ($93 million, up 29%).
Copaxone revenues benefited from the take-back of distribution and marketing rights in Europe from Sanofi (SNY).
Teva is currently seeking FDA approval of a 40 mg thrice-weekly (3TW - three times a week) formulation of Copaxone; a response should be out in the first quarter of 2014.
Meanwhile, respiratory segment revenues grew 15% to $219 million. The women’s health business recorded revenues of $103 million, down 5%.
Revenues in Europe increased 11% to $1.5 billion. Strong Copaxone revenues and higher revenues from the OTC and generics business drove performance.
European generic revenues of $873 million grew 9% from the year-ago period mainly due to higher generic penetration in France and Italy and successful launches in the quarter. This was partially offset by macro-economic conditions and healthcare reforms in major European markets. 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 3% during the quarter to $966 million. Unfavorable currency movement, lower revenues in Latin America, and weaker performance in Canada (due to government-imposed price reforms) led to the decline in revenues.
API revenues decreased 7% to $186 million. OTC revenues increased 56% to $306 million. Teva expects the OTC business to continue growing in double-digits.
Research & Development expense increased to $329 million from $292 million in the year-ago period. Meanwhile, Selling and Marketing (S&M) expenditures increased to $985 million from $916 million.
The company bought back 5.2 million shares during the quarter for about $200 million. Teva has a $3 billion share buyback program which was announced in Dec 2011.
2013 Outlook Maintained
The company maintained its outlook for 2013. Teva expects to earn $4.85 - $5.15 per ADS on total net revenues of $19.5 - $20.5 billion. The company intends to sell its Irvine manufacturing facility. The Zacks Consensus Estimate is currently within the company’s guidance range at $5.08 per share.
Our Take
Teva is going through a transition period. Although the company’s first quarter results were above expectations, we remain concerned about the performance of the US generics business. Moreover, new competition has entered the multiple sclerosis market in the form of Tecfidera.
Although Teva expects the US generics business to improve in the second half of the year, the entry of additional generic competition for Pulmicort would affect the performance of the US generics business. The company said that if it remains semi-exclusive on generic Pulmicort, it would be in a position to achieve the mid to high end of its US generics business guidance range of $4.3 billion - $4.7 billion.
However, the entry of additional competitors this year would lead to Teva delivering US generic sales at the low end or slightly below the low end of the guidance range. Teva currently carries a Zacks Rank #3 (Hold).
Companies in the pharma space that currently look well-positioned include Cubist Phamaceuticals (CBST) and Catalyst Pharmaceuticals Partners (CPRX). While Cubist Pharma is a Zacks Rank #2 (Buy) stock, Catalyst Pharma is a Zacks Rank #1 (Strong Buy) stock.
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