“We’ve been through some stormy weather during the last ten days,” said Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) CFO Dan Suesskind in his opening remarks at the annual Israeli companies conference held yesterday in Tel Aviv by investment house CIBC. “It began with the publication of our results for the first quarter of 2006 and ended with the US approval for Azilect, our treatment for Parkinson’s disease.”
The weather has, indeed, been stormy where Teva is concerned. Its results for the first quarter of 2006 disappointed the market, because they missed the forecasts, and the guidance was lukewarm. Teva has since dropped more than 14% and its market cap currently stands at $26.4 billion. The financials caused investors to wonder whether the acquisition of Ivax Corp. was actually delivering the results Teva had hoped for, despite it being clear that the verdict, in terms of financial performance, will not be based on one quarter alone. Suesskind himself said during his presentation that “Teva was not at its best during the first quarter.” In any event, Teva hopes its sales in 2006 will reach $8.2-8.5 billion, with proforma profit of $1.5 billion, or earnings per share of $1.82-1.90.
Recent developments at Teva have been quite positive. It obtained US Food and Drug Administration (FDA) approval for Azilect, the second ethical drug in the company’s history, at on this commercial sale. Teva’s first ethical drug was Copaxone, for the treatment of multiple sclerosis. Azilect is a kind of younger brother to Copaxone and Teva’s managers hope it will replicate the success of its older relative. “We waited a long time for the approval for Azilect,” said Suesskind. “To be honest, we knew we would get the approval on Wednesday, which is what happened.
"We were at a presentation in Las Vegas and hoped the approval would come through before the conference was over, so we could announce the news to everyone, but it didn’t happen. The presentation ended at 08:30, and the approval came through 90 seconds later, which meant we missed an opportunity to announce it there. Things don’t always work out the way you want them to.”
Lehman Brothers predicted that Azilect’s sales would reach $91 million in 2007. In addition to Copaxone and Azilect, Teva also has a presence in inhalation products, especially for asthma, a field Suesskind described as “between ethical and generic.” He noted that US regulations have been amended to ban the use of inhalers that are harmful to the ozone layer, and are not environmentally friendly. Therefore, from 2008 onwards, asthma sufferers will have to move to inhalers of the type produced by Ivax, which are environmentally-friendly.
Suesskind adds that another variable that may positively affect the situation is the current shortage of gas for the old type of inhaler. “This may well be an opportunity for expansion of the Ivax inhalers line at a much quicker rate than that required by regulations.” As regards Teva’s ethical activities, Teva global innovative R&D VP Dr. Irit Pinchasi recently told “Globes” that the company hoped to launch at least one unique product every year, from 2010 onwards. Suesskind repeated that projection yesterday.
On mergers, Suesskind said that one of Teva’s big advantages was its capacity for vertical integration between the chemical division (API) which supplies the raw material, and the pharmaceutical division. The API division currently supplies half of Teva’s raw material requirements. Suesskind said that “there is no reason why the chemical division should not be providing half the raw materials needed for Ivax’s pharmaceutical product line within two years.” In a recent conference call, Teva president and CEO Israel Makov said the synergy created by the Ivax merger would total $200 million, rather than the $150 million originally forecast by the company.
Teva’s main strength is its impressive list of filings with the FDA. The company has a generic product pipeline awaiting approval that is worth $92 billion (151 applications), and 52 products, worth a combined $39 billion, on which it expects to receive 180 day exclusivity. According to Teva’s figures, in 2006-2008 it will launch 100 drugs with combined sales of $50 billion. Of these, 25 products will be launched in 2006 with sales totaling $15-17 billion, and 70-80 products will be launched in 2007-2008 with sales totaling $30-35 billion.
In his presentation, Suesskind also commented on Teva’s balance sheet, following the $2.9 billion straight and convertible bond issue in January to finance the Ivax acquisition. “Teva has a leverage of 0.38,” he said, using the word leverage to refer to the company’s gearing ratio. “Our leverage did rise above the 0.5 level, a point at which we had to bear in mind that we could be risking our credit rating, which is currently set by Moody’s and S&P at BBB. This shows that we will reach a 0.5 leverage level if we raise several billion dollars, and I hope we won’t be raising any more finance at present. We obviously need to take a rest at this point and not continue with further acquisitions, at least not ones of this size.” Teva has averaged at least one acquisition a year in the last 20 years. On paper, Ivax has accounted for 2006.
Published by Globes [online], Israel business news - www.globes.co.il - on May 22, 2006
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