Teva Earnings Up but Mixed

On July 28, 2009, Teva Pharmaceutical Industries Ltd. (TEVA - Analyst Report) reported financial results for the second quarter ended June 30, 2009. Net sales increased 20% y-o-y to $3.4 billion in the reported quarter, missing the consensus estimate by a small margin. The strengthening U.S. dollar adversely impacted net sales by $256 million or 9%.

Non-GAAP net income increased 25% to $742 million. Non-GAAP EPS of $0.83 (up 15% y-o-y) exceeded our and consensus estimate of $0.81 and $0.80, respectively. Strong sales, improved gross margins (due to better product mix) and lower-than-expected R&D expenses helped drive earnings in the reported quarter. GAAP net income declined 2.3% to $521 million or $0.58 per share.

Revenue performance across key business segments was mixed. While total pharmaceutical sales increased 22% y-o-y to about $3.3 billion in the reported quarter, total API business sales declined 13% y-o-y to $135 million. The decline in API sales is partially due to the recognition of sales to Barr (BRL) and PLIVA as internal sales.

Pharmaceutical segment sales were driven by strong performances in the North American and international segments. The launch of a generic version of Adderall XR and continued strong sales from existing products like generic versions of Lotrel, Yasmin, Protonix and Imitrex helped North America sales grow 36% to $2,052 million.

Meanwhile, its key branded product Copaxone continued to impress with global in-market sales increasing 21% to $682 million. Sales increased 32% to $438 million in the U.S. Ex-U.S. sales totaled $243 million, up 5%. The strong performance should continue and we expect Copaxone sales to cross $2.5 billion in 2009.

Other products/segments that contributed to growth were Azilect at $55 million, up 31%, women’s health business at $80 million, up 4%, and the global respiratory business at $189 million, up 13%.

International pharmaceutical sales came in at $481 million (up 20%), surpassing our estimates by a whopping $36 million. Growth was driven by increased sales in Russia, Croatia and Israel as well as in certain countries in Latin America, which were partially offset by currency effects.

Foreign currency fluctuation also impacted pharmaceutical sales in Europe which declined 4% to $732 million. 

Teva declared a cash dividend of about 15.7 cents per share. The company announced that the Barr integration continues to run ahead of schedule. The Barr acquisition contributed to growth across several regions especially the U.S., Russia, Poland, Germany and Croatia.

We remain optimistic on the company’s growth prospects and we expect Teva to continue posting strong revenues and earnings going forward. We maintain our Buy rating on the stock.

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