Nice Quarter, Teva. What Will You Buy Next?

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Sometimes, using equity to grow can come back to bite you. Teva Pharmaceuticals' (Nasdaq: TEVA) acquisition of Barr Pharmaceuticals helped boost its net income in the third quarter, but its earnings per share fell as that larger pie was split into a greater number of pieces.

Excluding one-time charges, though, the acquisition seems to be benefiting the generic-drug maker more than it's hurting it. Revenue was up 25% during the quarter, thanks to the acquired products, and adjusted EPS were up 16% year over year. The Barr acquisition should really show up in the bottom line next year. The company is guiding for 2010 adjusted EPS to be 34% higher at the mid-range of projections.

Teva may be the world's largest generic-drug maker, topping generic sales by Novartis (NYSE: NVS) and Mylan (Nasdaq: MYL), but its branded business continues to help drive a greater portion of revenue growth for the company. Sales of multiple sclerosis treatment Copaxone rose 38% year over year, and they may be able to maintain that growth as Biogen Idec (Nasdaq: BIIB) and Elan (NYSE: ELN) continue to struggle with Tysabri's side-effect issues. Teva's respiratory-drug business is also growing at a healthy 37% clip, and Barr's women's-health business contributed 10% more sales to the combined entity than it did to Barr last year.

Which begs the question: What will Teva buy next? The company has made no secret of its plans to continue its extrinsic growth. But will it continue down the path of generic-drug acquisitions, or move further into the higher-growth branded-drug arena? The rumor farm isn't much help. There are hints that the company's interested in buying Protalix BioTherapeutics (NYSE: PLX), if Pfizer (NYSE: PFE) doesn't do so first. It might also bid on German generic-drug maker Ratiopharm.

Whatever Teva buys, as long as the acquisition starts adding to the bottom line in the first year after the acquisition, investors should be happy.