Foolish Forecast: Tenacious Teva

Generic-drug maker Teva Phamaceuticals (Nasdaq: TEVA  ) releases earnings on Tuesday morning. Let's take a look at whether we should expect a generic quarter or blockbuster one.

What Fools say:
Fools love their generic-drug makers. From big to small, the bulls rule:

Market Cap (billions)

CAPS Rating

Bull Ratio

Barr Pharmaceuticals (NYSE:BRL)

6.0

*****

96%

Dr. Reddy's Laboratories
(NYSE:RDY)

2.7

*****

96%

Mylan (NYSE:MYL)

3.7

***

92%

Teva Phamaceuticals

33.8

****

95%

Data taken from Motley Fool CAPS and Capital IQ on 10/26/2007.

What management says:
On its last earnings conference call, management said it had 153 products waiting for FDA approval, representing $90 billion of annual branded sales. They believe 40 of those are first-to-file abbreviated new drug applications (ANDA), which would earn Teva the coveted six months of marketing exclusivity.

Last November, the company authorized a $600-million share repurchase plan. It's repurchased almost two-thirds of that, but didn't repurchase any shares in the second quarter, suggesting the company doesn't feel its shares were undervalued.

Based on its strong first half and growth opportunities in the second half, it expects to be at the higher end of the guidance of $2.20 to $2.30 for the year announced in May.

What management does:
SG&A margins have been increasing thanks to higher sales of branded drugs, but that's cancelled out by higher gross margins on the aforementioned drugs. Operating margins are down slightly thanks to increased R&D expenses, which will hopefully pay off in more products and increased revenue down the line.

Margins

3/06

6/06

9/06

12/06

3/07

6/07

Gross

47.4%

50.0%

52.2%

51.8%

52.2%

51.4%

SG&A

16.6%

17.1%

17.4%

18.7%

19.4%

20.0%

Operating

24.0%

26.6%

28.7%

27.2%

26.8%

25.4%

Net

(3.5%)

0.8%

5.2%

6.5%

21.5%

21.3%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Generic-drug makers live and die by their new products, and Teva has certainly been grabbing its fair share. It announced six full FDA approvals during the quarter, including launching generic version of GlaxoSmithKline's (NYSE: GSK  ) cardiovascular agent Coreg.

The company did well in court as well, winning two court cases related to patents on Novartis' (NYSE: NVS  ) Famvir tablets. Look for a nice bump in revenues from the exclusive sales of the drug in the third quarter, with a more substantial contribution during the fourth quarter, when it will have a full quarters' worth of contribution.


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