Teva Raises Forecast as Profit Beats Estimates on Generics

Jul 31, 2014 11:14 am ET

(Updates with U.S. stock price in sixth paragraph.)

July 31 (Bloomberg) -- Teva Pharmaceutical Industries Ltd. raised its profit forecast and reported second-quarter earnings that beat estimates as its generic division cut costs and a new version of the bestselling Copaxone drug gained traction.

Profit excluding some costs rose 4 percent to $1.05 billion, or $1.23 a share, from $1.02 billion, or $1.20, a year earlier, the Petach Tikva, Israel-based company said in a statement today. Earnings per share on that basis exceeded the $1.22 average of 24 analyst estimates compiled by Bloomberg.

The company said it has converted more than half of its patients in the U.S. to a longer-acting version of the branded multiple sclerosis treatment Copaxone, which analysts estimate brings in more than half of Teva’s profits. Revenue from Copaxone fell 12 percent in the quarter to $939 million because suppliers had stocked up on excess inventory of the drug’s 20- milligram dosages during the first quarter.

“This was a weak quarter for Copaxone so it’s amazing that they still managed to beat estimates,” said Ori Hershkovitz, a managing partner at Sphera Funds Management Ltd. in Tel Aviv, which holds Teva shares. “There was very strong performance by generics and other branded drugs.”

Cutbacks’ Boost

Teva’s pledge last year to cut costs by as much as $2 billion is already starting to boost profit from generics. Revenue from the drugs climbed 5 percent to $2.5 billion while so-called segment profitability jumped 41 percent to $532 million because of lower marketing expenses. U.S. generic sales rose 10 percent.

Teva’s American depositary receipts fell as much as 3.1 percent, the steepest intraday drop since May 2, and were trading down 2.8 percent at $53.33 at 11:10 a.m. in New York. That compared with stock declines today of about 2 percent at U.S. competitors Mylan Inc. and Actavis Plc.

“The overall specialty pharma market has been under pressure, so there might be some profit taking after Teva had a relatively good run,” David Maris, an analyst at BMO Capital Markets Corp. in New York. said in a telephone interview. “There might be some who are still concerned about a generic Copaxone coming in. These results were solid.”

Copaxone faces competition from newer oral drugs, and cheaper generics may reach the market as early as this year. To ward off a sudden decline in profitability, Teva has converted 51 percent of its U.S. patients to the new patented, three- times-a-week formulation. It expects to reach a 65 percent conversion rate by the end of the year, Chief Executive Officer Erez Vigodman said.

Forecast Range

Profit this year will be $4.90 to $5.10 a share if there’s no Copaxone generic, and $4.50 to $4.80 a share if there is one, Teva said today. Previously, the company forecast $4.80 to $5.10 in the absence of a generic competitor, and $4.20 to $4.50 a share with one.

As Copaxone’s resilience surprises Teva investors, the focus is growing on Vigodman’s drive to deliver growth through deals and as much as $2 billion in cost cuts. While he has pledged to be “aggressive” in lowering expenses, he plans to lay out a comprehensive strategy later this year. Vigodman said today that respiratory drugs and pain treatments will be key areas of growth.

The company’s American depositary receipts have returned 35 percent this year including reinvested dividends, outpacing the 14 percent return for the Bloomberg Europe Pharmaceutical Index.

Seeking Extension

The patent on the daily Copaxone injection expired in late May. Teva has filed a lawsuit to try to extend the term until September 2015, and the U.S. Food and Drug Administration has yet to approve any generics.

Revenue rose 2 percent to $5 billion, below the average analyst estimate of $5.09 billion. Teva’s sales are benefiting from new products, including a generic version of Eli Lilly & Co.’s Evista for osteoporosis.

Generic drugmakers are seeking approval to market copies of Copaxone. If granted, generic filers will need to decide whether to file at risk of having to pay damages if they lose the pending patent-infringement case.

The generic filers include Momenta Pharmaceuticals Inc. and partner Novartis AG’s Sandoz; a Mylan Inc. partnership with Natco Pharma Ltd. and Synthon BV with an undisclosed partner.