Which is more impressive: a 21% increase in U.S. sales of a high-margin drug or a 14% increase in U.S. sales of low-margin products? Normally the choice would be clear, but in Teva Pharmaceutical's (Nasdaq: TEVA ) case, I'm going to have to go with the slower-but-still-impressive generic drug sales growth.
That's not to say the 21% increase in sales of its multiple sclerosis drug Copaxone isn't impressive; there's tough competition out there from Biogen Idec's (Nasdaq: BIIB ) Avonex, Tysabri from Biogen and Elan (NYSE: ELN ) , Rebif from Pfizer (NYSE: PFE ) and EMD Serono, and others.
But Copaxone will face generic competition at some point -- sooner rather than later if Momenta Pharmaceuticals (Nasdaq: MNTA ) and Mylan (Nasdaq: MYL ) have their way -- and Copaxone will soon see competition from an oral treatment for multiple sclerosis if the Food and Drug Administration approves Novartis' (NYSE: NVS ) Gilenia.
Generic drugs, on the other hand, seem to provide a never-ending supply of growth. Branded drugs are constantly losing patent protection -- Teva launched nine new products in the U.S. this quarter -- and the global push to decrease health-care costs should increase the use of generics. Plus, Teva has some ability to push margins higher as it increases in size. The company expects to close on its acquisition of Ratiopharm this quarter, and I doubt it's done growing yet.
The strong quarter on both fronts pushed Teva to increase the lower end of its 2010 guidance; the company now expects adjusted earnings to come in between $4.50 and $4.60 per share. That values the company at about 11 times this year's earnings. It is not exactly a cheap generic, but it isn't all that expensive if Teva can keep up the stellar growth.