Tuesday, May 10, 2011

Teva Pharmaceutical (NASDAQ: TEVA): Q1 Earnings Preview 2011

Teva Pharmaceutical Industries Limited (NASDAQ: TEVA), the world's largest maker of generic drugs, is scheduled to release first-quarter earnings before the market open on on Wednesday, May 11, 2011.. Analysts, on average, expect the company to report earnings of $1.04 per share on revenue of $4.25 billion. In the year-ago period, the company reported earnings of 91 cents per share on revenue of $3.65 billion.

Teva Pharmaceutical Industries Limited engages in the development, production, and sale of a range of generic and branded pharmaceuticals, biogenerics, and active pharmaceutical ingredients (APIs) worldwide.

In the preceding fourth-quarter, the Petach Tikva, Israel-based company's net income was $771 million, or 85 cents per share, compared to $379 million, or 42 cents per share in the year-ago quarter. On an adjusted basis, the company earned $1.25 per share. Revenue increased 16% to $4.42 billion from $3.80 billion in the prior year. Analysts, on average, expected the company to report earnings of $1.28 per share on revenue of $4.64 billion.

At its last earnings call in February, Teva said it expects net sales of $18.5 billion to $19.0 billion non-GAAP earnings of $4.90 to $5.20 per share for the full year 2011. The company said that it expects the second half of 2011 to be stronger than the first half and the second quarter to be stronger than the first quarter of 2011. Quarterly net sales and earnings per share results are expected to improve sequentially. Performance is expected to be stronger during the second half of the year. Teva expects gross margin in the range of 57.5% - 59.5% in 2011, lower than the 59.6% gross margin reported in 2010. The company pointed out that 2010 gross margin was boosted by contributions from major generic product launches in the US. 

In February, the company reaffirmed that it is committed to achieve net profit and revenue forecast for fiscal 2015. The company projects non-GAAP net income of $6.8 billion and revenue of $31 billion by 2015, which was announced in January 2010. The company expects respiratory products, including several new medicines, to contribute about $2.4 billion to its $31 billion revenue target for 2015. Teva added that it remains committed to executing its long-term strategic plan, including future acquisitions and expansion of its generic and branded R&D programs.

In addition to their generic portfolio, Teva also possesses a strong branded portfolio led by Copaxone, the world's leading injectable therapy for multiple sclerosis. The world's largest maker of generic drugs has plans to bolster its portfolio of its own branded medicines over the next five years. Teva intends to seek U.S. and European approval for 10 products -- six of them new brands -- by 2015, with an eye toward significantly expanding its presence in the market for respiratory products. 

Recently, Teva agreed Monday to acquire U.S.-based drugmaker Cephalon, Inc. for $81.50 per share in cash, or a total enterprise value of about $6.8 billion. The deal would enhance and diversify Teva's branded portfolio and would also broaden its reach into key therapeutic areas, including central nervous system, oncology, respiratory and pain management. The combined company's branded portfolio represents pro forma branded sales of about $7 billion, with a robust pipeline including more than 30 late-stage compounds. Teva expects cost synergies of at least $500 million by the third year after closing. However, it expects the deal to be accretive to adjusted earnings immediately and accretive to reported earnings within the fourth quarter of closing.

During the quarter in review, the company signed a master agreement with consumer goods giant Procter & Gamble Co. (NYSE: PG) to create a partnership in consumer health care. The partnership will include a joint venture that combines the companies' OTC businesses in all markets outside of North America. Teva noted that the markets included in the joint venture generated sales of more than $1 billion in 2010.

However, intense competition and pricing pressure in the generics market still remain concerns. The company's branded franchise drug Copaxone, which represents approximately 20% of their sales, is facing numerous threats and challenges. The company is facing patent challenges from generic players like Sandoz, Momenta Pharmaceuticals (NASDAQ: MNTA), and Mylan Labs (NASDAQ: MYL). On the bright side, Teva generates high levels of cash flow, has a very strong debt to equity ratio of 18% and therefore, has the scale and financial muscle to be more flexible and aggressive with their business model than most of their peers.

Full Disclosure: None.
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