Global Insight Perspective | |
Significance | Teva's sales grew by 18% year-on-year (y/y) in the second quarter of 2008 to US$2.8 billion. However, its low net profit and operating profits growths of 5% and 0.2%, respectively, have been due to increased selling, general and administrative (SGA) expenses, caused by the end of its distribution agreement with Sanofi-Aventis (France). |
Implications | Teva's operating margins have improved after it reported full global market sales of Copaxone for the second quarter. Generic exclusivity of risperidone and the U.S. FDA's backing of generic Wellbutrin (bupropion) have aided Teva's sales growth for the quarter. |
Outlook | Copaxone will remain Teva's leading revenue generator in the short term, with generic threats from Mylan and Mometa liable to affect sales of the drug in the medium to long term. Azilect's disease modifying ability could see the drug replace Copaxone as Teva's leading revenue generator upon commercialisation. Although Teva's recent acquisition of Barr Laboratories (U.S.) could affect profitability, it is likely to achieve sales guidance with the help of 149 tentative U.S. product approvals and 3,156 marketing authorisations pending approval in Europe. |
Teva's Reports Increase In Sales For Q2 2008
North American pharma sales pushed Teva Pharmaceuticals' (Israel) sales growth for the second quarter of 2008 up by 18% year-on-year (y/y), reaching US$2.82 billion. Like in the first quarter of 2008, finished dosage form sales—the core strength of the company—continued to account for most of the Israeli firm's revenue at 94%. Active pharmaceutical ingredient (API) sales accounted for the remaining 6%. North America led overall sales for the firm, accounting for 56% of revenue, with Europe and other international markets accounting for 29% and 15% in the quarter, respectively. International markets led Teva's sales growth for formulations, with Latin American market sales contributing to 46% of the international market sales. Strong generic drug sales in France, Hungary, Poland, and Czech Republic during the quarter caused an increase in sales from European markets.
Net income and operating income for the year stood at US$534 million and US$639 million, up by 5% y/y and 0.2% y/y, respectively. This moderate net income and operating income growth compared with the first quarter of 2008 has been due to a 43% y/y increase in selling, general, and administrative (SGA) expenses. Teva's Copaxone (glatiramer acetate) North American distribution agreement with French major Sanofi-Aventis ended on 31 March, with Teva paying Sanofi-Aventis 25% of the net sales of Copaxone over the last two years as part of the agreement. This payment has been included in Teva's SGA expenses for the quarter, while the termination has increased Teva's operating margins.
Teva: Selected Financial Results, Q2 2008 (US$ mil.) | ||
| Q2 2008 | % Change Y/Y |
Net Sales | 2,823 | 18 |
Pharmaceutical Sales | 2,667 | 19 |
Cost of Sales | 1,318 | 15 |
Selling, General & Administrative Costs (SG&A) | 669 | 43 |
R&D (incl. acquired in-process R&D) | 198 | 45 |
R&D as a % of Sales | 7.0 | 1.2 pp higher |
Operating Income* | 638 | 0.2 |
Operating Margin | 22.6 | 4.1 pp higher |
Net Income | 539 | 5 |
* Operating profit calculated by Global Insight as group sales minus cost of sales, sales, marketing, general and administrative costs and R&D expenditure. | ||
Teva: Pharmaceutical Sales by Region, (US$ mil.) | ||||
Q2 2008 | Q1 2007 | % Change Y/Y | % of Total Sales | |
North America | 1,573 | 1,416 | 11 | 56 |
Europe* | 814 | 653 | 25 | 29 |
Rest of the World | 436 | 317 | 38 | 15 |
Total Sales | 2,823 | 2,386 | 18 | 100 |
Source: Global Insight, based on company information | ||||
Copaxone Leads Teva's Proprietary Product Revenues
Copaxone, Teva's proprietary molecule indicated for remitting-relapsing multiple sclerosis, is not only the firm's leading proprietary molecule but also Teva's leading formulation. This quarter has been no exception to the trend, with Copaxone accounting for 20% of the firm's global sales. Copaxone generated US$563 million over the quarter, marking growth of 29% y/y. The United States remains the revenue generator for Copaxone, accounting for US$332 million, with the remaining US$231 million garnered from other global markets.
Teva's other proprietary molecule, Parkinson's disease drug Azilect (rasagiline), reported sales of US$42 million in the quarter, marking a 50% y/y increase. The generic firm's proprietary respiratory portfolio, consisting of ProAir HFA (albuterol sulphate) and Qvar (beclomethasone dipropionate HFA), put in a lacklustre performance during the quarter, despite its overall market leadership in the respiratory aerosol market due to competition from the chloro-fluoro carbon market (CFC) market. Teva's respiratory business recorded sales of US$168 million, down by 7% y/y.
Outlook and Implications
Teva's generic exclusively for its generic version of U.S. firm Johnson & Johnson's (J&J) Risperdal (risperidone), and other smaller generic products such as Sarafem Pulvules (fluxetine; Eli Lilly; U.S.) have aided U.S. sales growth for the second quarter. It also launched generic versions of lamotrigine and epoprostenol in the second quarter.
After achieving promising revenues in both the first and second quarters of 2008, Teva is well on its way to hitting its sales guidance of US$10.75 billion for the year. The completion of the Bentley Pharmaceuticals (U.S.) acquisition, as a means of expanding its Spanish operations, and plans to increase its generics portfolio in France will add to its revenues in the coming quarters. Final approvals of valsartan, losartan potassium, raloxifene, and rizatriptan will increase Teva's revenues from 2010 onwards. A total of 149 of Teva's products are awaiting final approval in the United States, while 3,156 marketing approvals relating to 454 formulations are pending approval in Europe.
Teva's Copaxone franchise is facing threat on several fronts, despite the fact that the drug remains the firm's top revenue generator and the leading treatment for relapsing-remitting multiple sclerosis. Although the firm's hopes of patent extension were dashed after disappointing findings showed that the drug provided no added efficacy at increased dosage, Para IV filings by Momenta Pharma (U.S.) and a generic Copaxone marketing agreement between Natco Pharmaceuticals (India) and Mylan (U.S.) could dent Copaxone sales in the event of successful patent challenges. However, Azilect's reported disease modifying ability could see the drug knock Copaxone off the top spot upon commercialisation.
Additionally, Teva's recent "big-ticket" acquisition of Barr Pharmaceuticals could put a strain on the Israeli firm's profitability in the short term.