Will Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) raise it guidance for the rest of the year or not? This is the question investors are asking ahead of the publication of the company’s financial report for the second quarter of 2006 tomorrow morning.
Most analysts note that sales of generic Zocor are better than expected, that Teva is winning a larger than planned market share, and that Teva’s guidance for generic Zocor sales were conservative. Analysts believe that, if only for this reason alone, Teva will raise its guidance for the year.
The generic pharmaceutical giant had a difficult second quarter. Exactly three months ago, Teva published its financial report for the first quarter, the first report to include the results of Ivax Corp., acquired for $8.6 billion. The problem was that the results, even excluding one-time losses related to the merger, write-offs, and large expenses, were below market forecasts. “I don’t know if people really knew how to do the math, but for us this was a record quarter” said Teva CEO Israel Makov at the time. “The results were in line with our expectations, and even exceeded them. 2006 will be a better year for Teva.”
Makov’s comments did not help Teva’s share, which fell. The second quarter will be the first full quarter in which Ivax’s results are included in Teva’s quarterly financials; the first quarter results included only one month of Ivax’s results.
Teva’s share did not improve during the second quarter, due to worries about the company’s business. This is where Simvastatin - generic Zocor - comes into the picture. It turns out that Zocor’s maker, Merck & Co. (NYSE:MRK) would not easily concede and is trying to reach agreements with health insurers to bypass generic versions of the drug. This development also hurt Teva’s share, even though the company tried to calm investors by saying Merck’s moves would have only a minimal effect. Teva’s announcements about its successful launch of generic Zocor helped neither the company nor the share, which fell below $30 on July 21.
Teva’s share has subsequently recovered, rising over 15% ahead of the company’s financials. What happened? Market sources attribute most of the rise to three factors. The first is the successful launch of generic Zocor, which won over half the market in less than a month, and is still gaining ground. The second is the financial report by Mylan Laboratories Inc. (NYSE: MYL), which showed there were no difficulties in the pricing of generic drugs on the market, and that prices had stabilized. The third factor was the release of preliminary figures from Teva’s second quarter financials relating to Copaxone, which showed continuing growth for the company’s ethical treatment for multiple sclerosis.
Bank Hapoalim analyst Gilad Sarig said Mylan’s financial report clearly showed that fears about a collapse of generic drug prices had dissipated. “Not only have drug prices stabilized, but the market itself has grown. Mylan raised its guidance for 2006, and we believe that Teva might do the same, since its portfolio, marketing and so forth are just as large as Mylan’s.”
Teva predicts $8.2-8.5 billion revenue in 2006 and pro-forma (non-GAAP) profit, excluding expenses, of $1.5 billion, or $1.82-1.90 per share. The company did not supply quarterly guidance, and analysts predict pro-forma earnings per share of $0.46 ($362.5 million) on $2.1 billion revenue for the second quarter. Analysts’ forecasts for 2006 exceed Teva’s own high guidance: they predict pro-forma earnings per share of $1.95 ($1.54 billion) on $8.4 billion revenue.
Teva’s market cap on Nasdaq is $26 billion.
Published by Globes [online], Israel business news - www.globes.co.il - on August 7, 2006
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