The persistent rise in the global demand for generic drugs provokes drug manufacturers to benefit by expanding their portfolios to include them. One example of this trend can be seen with Teva Pharmaceutical (TEVA 1.11%), which generates approximately 49% of its total revenues from generics and plans to further broaden its portfolio.
Teva has recently announced the exclusive launch of two new generic drugs in the United States, where it earns around 40% of its generic segment's revenue. The first launch for this month is of a drug equivalent to AbbVie's Niaspan, which is used to reduce people's cholesterol levels and has a great demand in the U.S. Due to its effectiveness, the drug became a blockbuster and generated impressive revenues for AbbVie. It had annual sales of approximately $1.12 billion in the U.S.
However, the situation changed soon after AbbVie raised the drug's price by 37% after its spinoff from former parent company Abbott Laboratories. In the quarter ended in March, revenue from the drug declined by 3% for AbbVie. AbbVie's price increase coupled with the huge demand for the drug is what Teva hopes to capitalize on by launching the relatively inexpensive generic version.
The second launch this month is of generic Adenoscan, which is an adenosine injection. According to IMS data as of June, the drug had an annual sale of approximately $65 million in the U.S. Increased demand for the product and manufacturing delays currently creates a shortage of the injections in the market. Anticipating the gap, Teva aims to earn steady profits by catering to patients at a lower cost.
These launches consequently are a means for Teva to make a U-turn in its revenue stream from the generic segment, which had declined by 8% in the second quarter compared with the year-ago quarter, driven by the lowered sales of generic Lexapro and Avapro and no royalties on generic Lipitor.
Financial performance
The chart below shows the revenue growth of Teva and its two main competitors: Actavis (ACT +0.00%) and Mylan (MYL +0.00%).
Graphically, you can see that Teva in the third quarter of 2012 and in the first quarter of this year performed adversely, whereas in this year's second quarter the situation improved minimally with the growth recorded as being only 0.57%. This slow growth is largely a factor of the decline in the generic segment's revenue for the first and second quarters of 2013 by 11.5% and 7.8%, respectively, compared to the same quarters last year; however, this decrease was offset to some extent by the increase in revenues from other segments.
In contrast, Actavis experienced drastic revenue growth in the fourth quarter of 2012 after enduring a negative growth in the third quarter. The revenues were up primarily owing to the inclusion of Actavis legacy on Nov. 1 and the launch of new products in key markets. In the next two quarters, the growth, though positive, declined on a quarter-over-quarter basis.
Lastly, Mylan's revenue growth declined in the last quarter of 2012 and in the first quarter of 2013 pertaining to the low sales volume; however, in the second quarter of this year, growth reached 4.30%, way better than both of its peers.
So we can conclude that for the first two quarters of 2013, Teva has shown the least growth in its revenue among the three.
Now let's look at the per-share earnings (or losses) of these three players.
As seen above, GAAP per share loss for Teva in the second quarter of 2013 is $0.53, which is worse on both quarter-over-quarter and year-over-year bases, as per share earnings in the year-ago quarter were $0.99. The factors that have lead to the per share loss are a decline in revenue, operating income, and the gross profit margin, in addition to the increase in expenses.
Per share earnings for Actavis in the second quarter is lowest among the three despite better revenue growth. Per share loss in the second quarter was $4.27, compared to a per share loss of $0.49 in the prior-year period. The approximately 771% decline is driven by the non-recurring impairment charges of the company's legacy Arrow business and the legacy Actavis Group. The loss in this year's first quarter was related to the acquisition of Actavis legacy group and Uteron Pharma SA.
Mylan's EPS, on the hand, showed improvement alongside the growth in revenue; so, the only decline in last year's fourth quarter and this year's first quarter was primarily due to the lower revenue growth recorded for that period.
Final thoughts
The financial performance of Teva is far from being satisfactory given its lowest revenue growth among competitors and the per share losses resulting from decreased margins. However, the new generic drug launches in the segment are expected to uplift the deteriorating situation affecting the company's overall revenue and net income.
