A boost from the acquisition of Actavis Generics from Allergan (NYSE:AGN) made the difference for Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) when the company reported its results for the fourth quarter of 2016. The addition of Actavis Generics drove Teva's revenue and earnings higher compared to the same quarter in 2015.

Teva announced its first-quarter 2017 results before the market opened on Thursday. The deal with Allergan again played a big role in Teva's performance. Here are the highlights.

Map of the world made up of pills.

Image source: Getty Images.

Teva results: The raw numbers

Metric 

Q1 2017 

Q1 2016 

Year-Over-Year Change

Sales

 $5.63 billion  $4.81 billion

17%

Net income from continuing operations

 $580 million  $570 million

1.8%

Adjusted EPS

 $1.06  $1.20

(11.7%)

Data Source: Teva Pharmaceutical.

What happened with Teva this quarter?

Teva's solid revenue growth yet again stemmed primarily from its purchase of Actavis Generics from Allergan, which closed in August last year. The increase would have been even higher were it not for currency fluctuations.

The growth in Teva's generics business segment more than made up for continued weakness in the company's specialty-drug business. First-quarter sales for multiple sclerosis drug Copaxone fell 4% year over year to $970 million. Copaxone generated 48% of Teva's total specialty-drug revenue.

Sales for several other specialty drugs also were sharply down from the prior-year period, including Azilect, Nuvigil, ProAir, and QVAR. However, combined sales for cancer drugs Treanda and Bendeka grew a little, up 1% year over year to $157 million. The brightest spot for Teva in its specialty-drug segment was with its women's health business, which saw sales climb 13% from the prior-year period.

The drugmaker's net income improved, but not as strongly as its top line. A big factor behind this sluggish growth was that Teva's gross margin declined due to the addition of the low-margin Anda distribution business acquired from Allergan and because of lower margins in the company's generic and specialty drugs businesses.

In addition, Teva's research and development costs rose 17% year over year, primarily due to the inclusion of the Actavis Generics business. Selling and marketing expenses grew 16% year over year, again in large part due to the Actavis Generics acquisition. General and administrative spending decreased 22.4% from the prior-year period, thanks mainly to income from a legal settlement in Canada and from milestone payments from out-licensing Attenukine.

Teva reported operating cash flow of $500 million in the first quarter, down significantly from the $1.4 billion posted in the same quarter of 2016. This decrease stemmed from higher payments for legal settlements.

What management had to say

Yitzhak Peterburg, interim CEO for Teva, said, "In the three months since I have stepped in as the Interim CEO, we have worked tirelessly to ensure that we extract synergies related to the Actavis Generics transaction, drive additional efficiencies throughout the organization, support cash generation, pay down debt, deliver on the promise of the specialty pipeline and execute key generic launches."

He added, "We are pleased that the transaction synergies and additional cost reductions are on track, and we now expect to realize cumulative net synergies and cost reduction of approximately $1.5 billion by the end of 2017, an increase of $200 million compared to our previous guidance. Notably, we have reduced our gross debt by $1.2 billion in the quarter. We are also pursuing the sale of certain non-core assets, including our global Women's Health business and our Oncology and Pain business in Europe, to pay down debt. In Specialty, we have received several important approvals, including the recent approval and launch of Austedo for Huntington's disease."

Looking forward

Teva reaffirmed its full-year outlook for 2017. The drugmaker continues to expect revenue of between $23.8 billion and $24.5 billion. Adjusted earnings per share for 2017 are projected to be between $4.90 and $5.30. 

The company faces multiple challenges that have weighed the stock down in recent months. These include a legal battle over a key patent for Copaxone and finding a replacement for its CEO and CFO positions. In addition, there are headwinds for Teva's U.S. generics business.  

 

Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Teva Pharmaceutical Industries. The Motley Fool has a disclosure policy.