Pharma companies far and wide are going through a difficult period because of the patent cliff. On the flip side, specialty and generic drugmakers have largely been the beneficiaries of top-selling drugs losing exclusivity, driving nice upticks in their top and bottom-lines. 

Despite being a leader in the specialty and generic drug industry, though, Teva Pharmaceutical Industries (NYSE:TEVA)has seen generic drug sales flat line, and instead has had to rely heavily on its branded multiple sclerosis drug, Copaxone, to create top-line growth. As Copaxone is facing its own patent issues, Teva's ability to continue on the growth path is now in serious doubt. With this in mind, let's take a deeper look at the company's third-quarter earnings release posted last week.  

Teva's third-quarter was better than expected
Teva beat consensus for both earnings per share and revenue in the third-quarter on the back strong sales in its specialty pharma unit. Specifically, the company posted non-GAAP diluted earnings per share of $1.32, compared to the Street's estimate of $1.23 for the three month period. Revenue for the quarter came in at $5.10 billion, beating consensus by $10 million. On a non-GAAP basis, EPS grew by 4% and revenue by 0.9% relative to the same period a year ago. 

Teva also raised its full-year guidance range to $5.00-$5.10 a share, up from its prior estimate of $4.90-$5.10. According to the press release, the company believes this revision to the lower end of its full-year guidance is justified given that generic competitors to Copaxone probably won't enter the market this year. 

Perhaps as a way to keep the Street's attention in the face of generic competition for Copaxone coming sooner rather than later, management decided to increase its share repurchase program by $1.7 billion, for a grand total of $3 billion in planned buybacks.

Teva's flagship MS drug nevertheless continues to tick along like clockwork. For the quarter, sales grew by 5% to $1.107 billion, relative to a year ago. Putting this number into context, Copaxone made up 21.7% of total drug sales and over 50% of specialty pharma sales in the quarter, showing the serious threat generics pose to Teva's growth prospects moving forward.

Generic drug sales weren't so hot, specialty pharma picking up the slack
Generic drug sales fell by 2% to $2.4 billion for the three month period, compared to a year ago. The company blamed this decline on falling sales of amphetamine salts (generic Adderall) and the loss of exclusivity for niacin ER (generic Niaspan). Nonetheless, profitability in this segment still rose by 10% year-over-year due mainly to lower production costs. 

Although Copaxone tends to grab the bulk of investors' attention in the specialty drug arena, Teva did see some impressive levels of growth among some other specialty pharma products that are worth checking out. For example, the Parkison disease medicine, Azilect, generated 11% growth relative to a year ago, posting $103 million in sales for the quarter. Oncology product sales also increased by 19% to $299 million, compared to the same period a year ago.

These two high-growth product lines helped to offset losses in weaker specialty medicines like respiratory drugs, which saw sales slip by 7%. Per the press release, the overall higher sales for specialty medicines helped to increase the unit's profitability by 6% year over year.

Foolish final thoughts
Teva had a better than expected third quarter due to its specialty pharma unit. Even so, this is the business segment facing the most significant threat of generic competition in the not-so distant future. The question investors therefore need to ask themselves today is whether or not they believe in the company's ability to rapidly shift patients to the double-dose formulation of 40 mg copaxone administered three times weekly before generics finally do come into play.

My take on this pivotal issue is that Teva knows this patient population extremely well, which should give them a significant advantage over their competitors. If they fail to beat their rivals to the punch, though, things could turn sour in a hurry, given Copaxone's overwhelming importance to the company's top line. That's why I am shying away from grabbing shares of this top generic drugmaker for the time being, despite the increase in share buybacks and an attractive dividend yield of 2.1% at current levels.