Generic Drugs

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Change is certainly in the air in the generic pharmaceuticals industry, with a wave of mergers and acquisitions over the last year. Israel-based Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) is no stranger to this change, with the company involved in its fair share of buyouts recently. The large generic and specialty pharmaceutical company reported its third-quarter financial results on Thursday. How did Teva perform in the midst of major changes? Here are the highlights. 

Teva results: The raw numbers

 

Q3 2015 Actuals

Q3 2014 Actuals

Growth (YOY)

Sales

$4.823 billion

$5.058 billion

 (4.6%)

Net Income From Continuing Operations

$103 million

$876 million

 (88.2%)

EPS

$0.12

$1.02

 (88.2%)

Data source: Teva.

What happened with Teva this quarter?
Teva's year-over-year declines in revenue and earnings stemmed from several factors:

  • Total generic drug revenue fell 9% compared to the prior year period, primarily from sales decline for three drugs -- budesonide, niacin ER, and capecitabine
  • Specialty drug revenue in the third quarter was essentially unchanged from the same quarter in 2014. U.S. specialty drug sales increased 11% year over year, but European sales fell 21%. Teva's lead specialty drug, Copaxone, saw sales of $1.1 billion during the third quarter -- down 2% from the same period in 2014.
  • Currency fluctuations took a significant toll on sales. On a constant currency basis, generic drug revenue dropped by only 1% compared to the prior-year period, while specialty drug revenue increased by 5%.

Despite the lower revenue compared to last year, Teva's third-quarter results were better than many expected. And there was more good news. Teva's portion of revenue from PGT Healthcare, its over-the-counter joint venture with Procter & Gamble, grew 13% to $255 million. Sales in Latin America served as the key driver for PGT's third-quarter success.

The company also provided revised guidance for the full-year 2015. Revenue is now expected to come in between $19.4 billion and $19.6 billion. Teva previously projected full-year revenue between $19.0 billion and $19.4 billion. Full-year earnings are now expected to be in the $5.40-$5.45 per share range, up from previous guidance of $5.15-$5.40 per share. 

What management had to say
Teva's president and CEO, Erez Vigodman, acknowledged the change that Teva is undergoing in his remarks about the third quarter results. Vigodman stated, "This was a transformative quarter for Teva as we continued to deliver on all financial, operational and strategic promises."

He referenced the company's recently-announced acquisitions of Mexican drugmaker Rimsa and Allergan's Actavis Generics business. Vigodman added, "Through all this, we have taken great steps toward changing Teva profoundly, in a way that further highlights what makes us unique in this industry, allows us to better serve patients and enables us to provide significant value for all of our stakeholders."  

Looking forward
Those two acquisitions appear to be pivotal for Teva looking into 2016. Rimsa should allow the company to expand its Latin American presence significantly, building on the success that Teva and P&G have experienced in the region with PGT Healthcare.

The $40.5 billion Allergan deal is even more important for Teva's future. Teva expects double-digit increases in non-GAAP earnings per share next year as well as solid cost synergies. The company also thinks the Actavis Generics business will help from a product development standpoint in both generic and special drug markets. 

 

Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble and Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.