Teva Pharmaceutical Industries’ (TEVA: 57.94 -0.20 -0.34%) fourth quarter earnings of 94 cents per American Depository Share (ADS) missed the Zacks Consensus Estimate by a cent. Earnings, however, increased 18% from the year-ago period. Annual earnings were in line with the Zacks Consensus Estimate at $3.37 per ADS, up 11%.
Teva’s top-line performance remained strong with fourth quarter revenues increasing 33% to $3.8 billion and 2009 revenues coming in at $13.9 billion, up 25%. The strong top-line performance was offset by higher operating expenses which led to the earnings miss in the fourth quarter.
Fourth Quarter in Detail
Strong sales of Copaxone and the respiratory business helped drive revenues in the reported quarter. Net revenues increased 33% to $3.80 billion, with the Barr acquisition contributing to revenues across different geographical segments. Exchange rate fluctuations boosted fourth quarter revenues by $98 million.
Revenue performance across key business segments was mixed. While the Pharmaceuticals segment performed well thanks to strong performances in the North American, European and international segments, the active pharmaceutical ingredients (API) segment reported a 6.8% decline in growth with sales coming in at $136 million.
Pharmaceutical segment revenues were driven by strong performances in the North American, European and international segments. The launch of generic versions of Prevacid, Allegra-D and the re-launch of Pulmicort Respules and continued strong sales from existing products like generic versions of Protonix, Adderall XR, Lotrel, Accutane, Yasmin, Eloxatin, and Famvir helped North America revenues grow 35% to $2,324 million.
Meanwhile, key branded product, Copaxone, continued to impress with global in-market sales increasing 25% to $747 million. While U.S. in-market sales increased 33% to $509 million, ex-U.S. in-market sales totaled $238 million, up 13%. Unfortunately, Mylan (MYL: 18.87 +0.19 +1.02%) is looking to launch a generic version of Copaxone.
Other products/segments that contributed to growth were Azilect at $70 million, up 37%, and the global respiratory business at $282 million, up 9%. The women’s health business remained flat at $77 million.
We expect the North American pharmaceutical segment to continue posting strong revenues going forward. The company has a strong pipeline of products and as of Feb 5, 2010, had 216 abbreviated new drug applications (ANDAs) awaiting U.S. Food and Drug Administration (FDA) approval, representing more than $113 billion in branded sales.
About 140 of these ANDAs are paragraph IV challenges including approximately 89 first to file opportunities representing more than $55 billion in branded sales. The launch of Pfizer’s Effexor XR in July 2010 should help boost revenues.
Pharmaceutical revenues in Europe increased 24% to $925 million, mainly due to strong generic sales in Germany, France, Hungary and Poland. International pharmaceutical revenues grew 15% to $553 million, driven by increased sales in Israel and certain countries in Latin America.
Gross margin improved to 58.6% (up from 57.4% 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 increased slightly to $219 million. We expect R&D expense to increase as the company works on increasing its generic R&D output. 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 51% to $742 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 expenditures totaled $218 million, or 5.7% of revenues, for the fourth quarter, compared with $182 million, or 6.4% of revenues, in the comparable quarter of 2008.
Teva maintained its financial guidance for 2010 and stated that it expects to earn $4.40 - $4.60 on revenues of $16 billion. The current Zacks Consensus Estimate is towards the higher-end of the guidance at $4.53.
Our Expectations
We are impressed with Teva’s strong performance in 2009. We expect Teva to continue posting strong revenues and earnings going forward thanks to new product launches, both generic and branded. We are also pleased to see Teva’s progress with its branded and biogenerics pipeline.
Biogenerics should help drive growth in the long-term. Meanwhile, the acquisition of Barr Pharma should help Teva strengthen its position in the U.S. and expand its presence in Europe. We currently have an Outperform recommendation on Teva.
Teva’s top-line performance remained strong with fourth quarter revenues increasing 33% to $3.8 billion and 2009 revenues coming in at $13.9 billion, up 25%. The strong top-line performance was offset by higher operating expenses which led to the earnings miss in the fourth quarter.
Fourth Quarter in Detail
Strong sales of Copaxone and the respiratory business helped drive revenues in the reported quarter. Net revenues increased 33% to $3.80 billion, with the Barr acquisition contributing to revenues across different geographical segments. Exchange rate fluctuations boosted fourth quarter revenues by $98 million.
Revenue performance across key business segments was mixed. While the Pharmaceuticals segment performed well thanks to strong performances in the North American, European and international segments, the active pharmaceutical ingredients (API) segment reported a 6.8% decline in growth with sales coming in at $136 million.
Pharmaceutical segment revenues were driven by strong performances in the North American, European and international segments. The launch of generic versions of Prevacid, Allegra-D and the re-launch of Pulmicort Respules and continued strong sales from existing products like generic versions of Protonix, Adderall XR, Lotrel, Accutane, Yasmin, Eloxatin, and Famvir helped North America revenues grow 35% to $2,324 million.
Meanwhile, key branded product, Copaxone, continued to impress with global in-market sales increasing 25% to $747 million. While U.S. in-market sales increased 33% to $509 million, ex-U.S. in-market sales totaled $238 million, up 13%. Unfortunately, Mylan (MYL: 18.87 +0.19 +1.02%) is looking to launch a generic version of Copaxone.
Other products/segments that contributed to growth were Azilect at $70 million, up 37%, and the global respiratory business at $282 million, up 9%. The women’s health business remained flat at $77 million.
We expect the North American pharmaceutical segment to continue posting strong revenues going forward. The company has a strong pipeline of products and as of Feb 5, 2010, had 216 abbreviated new drug applications (ANDAs) awaiting U.S. Food and Drug Administration (FDA) approval, representing more than $113 billion in branded sales.
About 140 of these ANDAs are paragraph IV challenges including approximately 89 first to file opportunities representing more than $55 billion in branded sales. The launch of Pfizer’s Effexor XR in July 2010 should help boost revenues.
Pharmaceutical revenues in Europe increased 24% to $925 million, mainly due to strong generic sales in Germany, France, Hungary and Poland. International pharmaceutical revenues grew 15% to $553 million, driven by increased sales in Israel and certain countries in Latin America.
Gross margin improved to 58.6% (up from 57.4% 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 increased slightly to $219 million. We expect R&D expense to increase as the company works on increasing its generic R&D output. 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 51% to $742 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 expenditures totaled $218 million, or 5.7% of revenues, for the fourth quarter, compared with $182 million, or 6.4% of revenues, in the comparable quarter of 2008.
Teva maintained its financial guidance for 2010 and stated that it expects to earn $4.40 - $4.60 on revenues of $16 billion. The current Zacks Consensus Estimate is towards the higher-end of the guidance at $4.53.
Our Expectations
We are impressed with Teva’s strong performance in 2009. We expect Teva to continue posting strong revenues and earnings going forward thanks to new product launches, both generic and branded. We are also pleased to see Teva’s progress with its branded and biogenerics pipeline.
Biogenerics should help drive growth in the long-term. Meanwhile, the acquisition of Barr Pharma should help Teva strengthen its position in the U.S. and expand its presence in Europe. We currently have an Outperform recommendation on Teva.
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