Bloomberg News

Teva Forecast Leaves Investors Wondering What They’re ‘Cooking’

July 27, 2011

July 28 (Bloomberg) -- Teva Pharmaceutical Industries Ltd. said third-quarter profit will miss estimates even as it left the full-year forecast unchanged, leaving analysts wondering where the generic-drug maker will find more than $1 billion in added revenue in the fourth quarter.

Third-quarter earnings excluding some costs will be $1.22 a share, Chief Financial Officer Eyal Desheh said on a conference call yesterday. That falls short of the $1.35 a share analysts expected, based on the average of 20 estimates compiled by Bloomberg. Yet Petach Tikva, Israel-based Teva said it still expects to meet a full-year target of $4.90 to $5.20 a share.

That implies a quarter-on-quarter sales increase of about $1.2 billion in the year’s final period, said Gilad Alper, a Tel Aviv-based analyst for Meitav Investment House Ltd. The $1.70 a share Teva will need in the fourth quarter to make the middle of its forecast range is “a lot,” Natali Gotlieb, a Tel Aviv- based analyst for Israel Brokerage Investment, posted on Twitter after the statement. “What are they cooking?”

“We’re all struggling a little bit with the trajectory from here to the end of the year because it’s so back-end loaded,” Ronny Gal, a New York-based analyst for Sanford C. Bernstein & Co., told Teva executives in the call.

While Teva executives didn’t specify where they’ll get the money, they’re counting on introducing new products.

‘A Dozen Launches’

“We anticipate over a dozen launches over the balance of the year,” including an exclusive generic version of Eli Lilly & Co.’s Zyprexa in October, Chief Executive Officer Shlomo Yanai said on the conference call. The schizophrenia drug had $5.03 billion in sales last year.

The figures don’t include profits from the acquisition of U.S. biotechnology company Cephalon Inc., expected to close in October, Desheh said. This year’s acquisition of a stake in Japanese drugmaker Taiyo Pharmaceutical Industry Co. will add about $250 million to second-half sales, he said.

Earnings excluding some costs in the second quarter climbed 0.3 percent to $984 million from a year earlier, Teva said yesterday.

Teva’s first-half earnings per share totaled $2.14. If the company earns $1.22 a share in the third quarter, it would need $1.54 in the fourth quarter to achieve the bottom of its forecast range for the year, and $1.84 to meet the high end. Analysts predict $1.60, the average of 20 estimates compiled by Bloomberg.

Depositary Receipts

Teva’s American depositary receipts fell $1.04, or 2.2 percent, to close at $45.75 on the Nasdaq Stock Market. The ADRs have declined 7.2 percent in the past year including reinvested dividends, compared with a 21 percent return for the Bloomberg Europe Pharmaceutical Index.

Teva will get a sales boost from being first to sell generic Zyprexa, Gotlieb said. The Israeli company’s version of Johnson & Johnson’s Levaquin has competitors, however, she said, and because of a settlement the company is unlikely to begin selling copies of Pfizer Inc.’s Lipitor this year. She rates Teva’s shares “buy.”

Possible product targets for Teva include GlaxoSmithKline Plc’s Combivir for HIV, UCB SA’s allergy treatment Xyzal and Medicis Pharmaceutical Corp.’s acne medicine Solodyn, Bill Marth, president of U.S. operations for Teva, said in the conference call.

Lack of Products

A lack of new products in Teva’s U.S. generic-drug business accompanied manufacturing problems and uncertainty in the last two quarters about the future of Teva’s biggest drug, the multiple sclerosis medicine Copaxone. Teva said it didn’t introduce significant new generic drugs in the U.S. in the second quarter, even as sales of its key products in that segment dropped.

North American sales fell 15 percent to $2.1 billion. Sales of generic and other drugs excluding Copaxone in the U.S. fell 40 percent to $903 million.

Copaxone sales rose 24 percent to a record $957 million. Teva raised the price for the third time in 13 months in January, as the drug faced competition from the first pill approved in the U.S. for multiple sclerosis, Novartis AG’s Gilenya.

Meanwhile, revenue in Europe rose 82 percent to $1.48 billion, helped by the inclusion of sales from Germany’s Ratiopharm, acquired by Teva in August.

“The business is saved by the fact that they’re making big acquisitions,” said Alper, who rates Teva’s shares “market perform.” Once Cephalon is added into Teva’s results, he said, it may be unclear what Teva’s earnings would have been without the U.S. company.

“Either a gigantic launch, or Cephalon will simply obfuscate the entire quarter,” he said.

--Editors: Phil Serafino, Kristen Hallam

To contact the reporter on this story: Naomi Kresge in Berlin at nkresge@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net


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